Napster, the file-sharing business that devastated the music industry at the turn of the century, has been sold to UK technology company MelodyVR in a $70m deal.

The acquisition from US company RealNetworks is the latest attempt to transform the famous tech boom brand, which was co-founded in 1999 by digital pioneer Sean Parker, who went on to be an early Facebook investor.

Having found fame as a website that allowed millions of people to share music illegally over the internet, Napster was shut down in 2001 before being resurrected as a streaming platform.

MelodyVR streams virtual music concerts and events in conjunction with promoters including Live Nation. Chief executive Anthony Matchett told the Financial Times he was confident he could create a strong player in the music sector by combining its fledgling virtual live music business with Napster’s streaming operation.

“This acquisition puts us on a path to being profitable as a group pretty quickly,” he said.

The purchase price comprises $15m in cash, $11m in MelodyVR shares and $44m in payment obligations to various music publishers and record labels. That historic debt looks to be a heavy burden for the lossmaking UK start-up, though Mr Matchett said the obligations are “manageable”.

The company reported less than £200,000 in revenue in 2019 when it recorded a £16.1m pre-tax loss, so the Napster deal represents a reverse takeover of the business.

During its heyday, Napster raised the ire of the music industry, with the heavy metal band Metallica successfully suing the company. The site’s closure proved to be a turning point for the sector, with its success triggering a sharp decline in CD sales and a shift towards downloading music via Apple’s iTunes, and later streaming through legal services such as Spotify.

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Napster was relaunched as a download service to take on iTunes and later converted to a streaming platform that operates both under its own brand and as a service provider to other companies. It has built a base of 3m users and a song library of 90m pieces of music.

RealNetworks took control of Rhapsody, the parent company behind Napster, last year. Previous Napster investors include Best Buy, the electronics retailer, and Spanish telecoms company Telefónica.

Mr Matchell said he remained confident there was room for smaller players in the streaming market despite the huge scale of Spotify and Apple.

MelodyVR will raise $15m through issuing new shares to fund the deal.

Via Financial Times