The company had hoped to settle its long-running copyright battles with the major record labels by now, paving the way for it to launch its subscription service this month. Instead, negotiations have proved rocky, and the company iswithout a clear path to settlement in sight.
"In order to see this through the long haul, we needed to make moderate and temporary staffing reductions which resulted in a 10 percent cut," Chief Executive Konrad Hilbers said in a statement. "We intend to fill these positions once we are closer to launch."
Once the hottest service on the Internet, Napster shuttered its popular song-swapping service last July after losing successive court battles that would have kept it open. Its planned subscription service requires it to win permission from record labels to distribute their music.
The company has already launched a limited public test version, using independent-label music to which it has already won the rights, to demonstrate how the new service will work. But Hilbers has said he does not want to open the doors to the general public until he settles the disputes with all or most of the Big Five music labels: BMG Entertainment, EMI Recorded Music, Sony Music Entertainment, Universal Music Group and Warner Music Group.
The long-running court case has taken ain recent weeks as federal judge Marilyn Hall Patel has turned some potentially uncomfortable scrutiny on the record labels as well as Napster. Last month she ordered a review of the labels' ownership of songs they said have been stolen through Napster, and she began looking into whether the music conglomerates' online activities have treaded into sticky antitrust territory.
Meanwhile, Napster is in the awkward position of burning through cash without the ability to make money from its new service. Its operations for the last year have been almost wholly funded by German conglomerate Bertelsmann, owner of BMG Entertainment.
Hilbers has said in the past that the cash flow is not endless. Napster went through another round of layoffs in October,about 15 percent of its staff.
"Bertelsmann remains committed to the new Napster service and will continue to fund us accordingly through launch," Hilbers said.