Apple's historic deal with HP may have been a killer blow against rival digital music distribution service Napster.

A report claims Napster had paid HP $250,000 in order that its software and service be promoted by the world's largest computer company. In the days before HP announced its deal with Apple, Napster saw its money returned – and then things got worse – HP announced its plan to carry an own-branded version of Apple's iPod.

Mercury News reports that woe continues at Apple's competitor: "Napster is losing money, and top executives have left the company, including its president, chief financial officer, vice president of programming and head of corporate communications as well as a key board member."

The report also states Napster has begun laying people off, while music industry insiders told the Mercury News that it sells just "a quarter" the downloads Apple does.

"I think it's a very competitive market with very ugly economics and there's just no money in the download business,'' Steven Frankel, managing director of Adams, Harkness and Hill told the paper.

Parks Associates research analyst John Barrett told Digital Music News last week: "The digital-music market is quickly growing and everyone is jumping into the space. Margins are razor thin, however, and substantial volumes are needed to make a profit. I expect, therefore, that the less successful players will begin to quit the market within a year or two, and we'll see just the best of the best survive."