By Robert Menta
In a surprise move, music file-swap company Scour announced it has filed for Chapter 11 bankruptcy. The Michael Ovitz backed company said it made the move to protect itself from lawsuits by both the major music labels and the movie industry that has proved very costly for the company. The company filed its motion in the U.S. Bankruptcy Court for the Central District of California in Los Angeles
The media giants are angry at the company's Scour Exchange product which, like Napster, allows free trading of digital music files. The software actually goes beyond Napster because it allows people to trade all multimedia files including movies. This had led to a one-two punch, drawing legal action from both the movie and record industries.
"We took this step in order to preserve Scour's future," said Dan Rodrigues, president of Scour. "The Chapter 11 process will also provide our management and board of directors with adequate time to review and develop recapitalization and restructuring alternatives to strengthen and improve Scour's business position."
The litigation has proved quite damaging to the media start-up. Venture capital, which has been harder to come by for all start-ups these days, has completely dried up for digital media companies as the lawsuits scare away investors. Seeing this as a tool, the traditional media conglomerates took this a step further by actively targeting the VCs with a letter campaign threatening more legal actions, a tactic that has proven very effective in shutting off badly needed funds.
Scour recently laid off 52 members of its staff in an effort to preserve as much money as it can. It comes at a time when the company's products are blossoming under all the media scrutiny of the Napster case which has millions of users file swapping on the Net. Scour announced that its services will continue to function while the backruptcy process goes forth. Chapter 11 essentially puts the lawsuits against them on hold indefinitely, which will protect the company in the short run.
Point-to-point software is the hottest tool on the Internet today and it's well worth it for Scour to do everything in its power to ride this one out. Should Napster win its court case, companies like Scour would be free of the pressures from the media giants and their value would soar. VC money will flood it at that point.
The point is, can Scour wait it out?
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