Founder and CEO Depart Gasping Napster

Languishing Napster‘s high-profile CEO and its cult-hero founder both have quit abruptly, leaving the once-soaring music-swapping site facing an uncertain future.

Founder Shawn Fanning, who invented the Napster file-swapping system while a college student in Boston, announced his departure just hours after the exit of Konrad Hilbers, a music heavyweight brought in last July to oversee Napsters planned transformation from underground phenomenon to legitimate commercial enterprise.

End of the Road?

The exodus led to widespread speculation that Napster would file for bankruptcy and that rumored deals that called for the company to be acquired by Bertelsmann, which invested US$85 million in Napster in recent years, had fallen through.

A Bertelsmann spokesperson refused to comment on the reports but did acknowledge the resignations of Hilbers and Fanning, who had been serving as chief technology officer.

Napster has been trying without success to emerge from a court-ordered shutdown as a label-friendly pay-for-use site. That debut was supposed to happen last fall but has been repeatedly postponed.

Forrester Research analyst Michael Gazala told the E-Commerce Times that Napster’s demise presents an opportunity for the music industry, which has been slow to adapt to new technology. With 84 percent of young, online consumers using Napster or a similar service as of last year, labels have a built-in audience, he noted.

“They’ve been too obsessed with preventing piracy and not concerned enough with giving their audience what it wants,” Gazala said.

Center of Attention

Napster enabled users to download compressed music files from other computers on the network.

At the height of its popularity, the company became a flashpoint for controversy within the music industry as big-name bands took opposing sides of the argument, and among society in general, when surveys showed that the majority of people do not consider downloading copyrighted music to be stealing.

At the same time, Fanning rode Napster’s wave of popularity and the Internet boom to become a cult hero. Although he was not yet 21 at the time, Fanning appeared on the covers of Time, Fortune and Business Week and was named Tech Renegade of the Year by Wired Magazine.

To Be Continued

File swapping continues in the post-Napster era, however, and a debate rages over whether the practice might actually encourage music sales by exposing potential customers to new tunes.

Even before Napster went silent, a host of similar sites such as Morpheus and Kazaa had sprung up to compete with the dominant service. Music companies also had unveiled commercial file-swapping sites, including Pressplay and MusicNet.

But the legal battles inflicted the heaviest wounds on Napster.

Despite its attempts to refocus the spotlight on alleged anticompetitive behavior on the part of record labels, Napster was forced to shut down while it purged its network of copyrighted music files. That shutdown now seems even more likely to be permanent.