The Associated Press

WEST SACRAMENTO, Calif. - The parent company of Tower Records, the pioneering record merchant that invented the music megastore and became one of the nation's largest music and video retailers, has filed for bankruptcy, the company said Monday.

MTS Inc., the privately held parent of the West Sacramento-based chain, said it has filed a prepackaged plan of reorganization and voluntary petitions for reorganization under Chapter 11 as the concluding step in a debt restructuring that began in May.

The company filed in U.S Bankruptcy Court in Wilmington, Del.

The filing is expected to help clear the way for selling the 93-store chain that suffered from rapid changes in the music business, especially the exploding popularity of downloading music for free from the Internet.

Those trends and a major slump in the music industry followed fast on the heels of the company's 1998 decision to expand using $110 million of borrowed money.

A filing last April with the U.S. Securities and Exchange Commission revealed that the retailer had lost money for 13 straight quarters. The firm's earnings peaked at nearly $1.1 billion in the fiscal year that ended July 31, 2000, and then began falling, leading to mounting losses and store closings in 2001 and more in 2002.

Analysts said other music retailers are suffering as well.

"Sam Goody has been closing stores," music attorney Jerry Reisman of Garden City, N.Y., said. "They suffer from some of the same pains that Tower Records suffers from. Virgin may not be in that much trouble, but I will tell you, Virgin, too, is having difficulty competing just on the sale of music."

Reisman cited record piracy as a major factor in music retailing's demise, saying, "The person who is buying CDs, the predominant person is teenagers who shopped in the past at stores such as Tower, and they are no longer shopping at Tower. They are taking the music online without having to pay for it."

Court approval of the bankruptcy plan will cut the existing $110 million debt by $80 million, Tower CEO E. Allen Rodriguez said in a news release, and will eliminate "the financial risks that have faced Tower for the past three years."

The company said it expects to receive plan confirmation and successfully complete the reorganization within 60 days.

The filing comes nearly a year after MTS decided to sell Tower because it could not make a $5.2 million payment on its debt.