Peter Kafka

Recent Posts by Peter Kafka

Seeqpod Offers Free Music, but Its Lawyers Don’t Come Cheap

devils-advocateNo one wants to pay for music on the Internet. But running a free music service on the Web takes a whole lot of cash. Just ask the folks at Seeqpod, which filed for Chapter 11 bankruptcy protection last week.

Seeqpod, founded in 2005, has raised either $5 million or $7 million since then (I can’t vouch for either number). But its Chapter 11 filing lists assets of just $2 million, and debts of $1.6 million.

I’m used to seeing bankruptcy filings where the debt number is much bigger than the asset number. But as Seeqpod bankruptcy attorney Scott L. Goodsell patiently explained to me last night, companies frequently seek Chapter 11 specifically so they can stay pending litigation.

In this case, Seeqpod is trying to get a breather from lawsuits filed by Warner Music Group (WMG), and, more recently, EMI Music Group. Both music labels say the search engine violates their copyright by offering users streaming music it hasn’t licensed.

Seeqpod says it’s protected by the Digital Millennium Copyright Act, but at this point, Seeqpod’s legal arguments don’t matter nearly as much as its bank account.

It already owes Farella Braun + Martel, its lawyers in the copyright cases, $424,235.06, according to the filing. That’s four times more than what it owes Level 3 Communications (LVLT), its bandwidth provider.

Meanwhile, as battered as the big music companies are, they can certainly afford to keep paying their lawyers. Warner’s stock price is hovering in the $2 range, but it threw off $160 million in free cash flow in the last quarter.

Even in the good old bubble days, it would be hard for a site like Seeqpod to find investors willing to back it in a legal fight where it was that badly outgunned. Seems unlikely that it will find a champion willing to pick up the tab now.

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— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google