Beyond Oblivion, a digital music startup backed by Rupert Murdoch's News Corp and investment bank Allen & Co Director Stanley Shuman has filed for bankruptcy protection after spending millions of dollars building a service that never saw the light of day.

Journalists were given a preview of the New York start-up service that aimed to give away a limitless library of digital music with devices that had the Beyond Oblivion software pre-installed.

Such a plan would have had music licensing costs running at tens of millions dollars even before it achieved any scale.

Beyond Oblivion owed creditors between $100 million and $500 million, with estimated assets of less than $10 million, according to a Chapter 11 filing at the U.S. Bankruptcy Court, Southern District of New York.

Its two largest unsecured creditors were major music companies Sony Music Entertainment and Warner Music Group who are each owed $50 million, for what is described as trade debt.

The board of directors, which includes Shuman and News Corp's digital chief Jon Miller, agreed to wind down operations earlier this month.

Beyond Oblivion, which was founded in 2008 by British entrepreneur and music producer Adam Kidron, raised nearly $90 million in venture funding in its last two years.

News Corp originally paid $9.2 million for a 23 percent stake in Beyond Oblivion in April 2010, according to company regulatory filings. At that time Shuman, a News Corp director emeritus, had an 18 percent stake. News Corp said in the filing that Shuman did not receive compensation for his Beyond Oblivion board service.

In the News Corp's fiscal year through June 30, 2011, the company pumped an additional $2 million into the digital music company. As of June 30, News Corp and Shuman owned around 20 percent and 14 percent respectively.

While relatively small in the context of News Corp's $45 billion market capitalization, the collapse of Beyond Oblivion is the latest misstep with digital start-ups for Murdoch's company.

Murdoch, who has flirted with Internet businesses since the first dot-com boom in the late 1990s, famously bought social network leader MySpace for $580 million in 2005, only to see it lose its stature to Facebook. MySpace was sold last year for just $35 million.

Earlier this month on Twitter, Murdoch said about his company's role with MySpace: We screwed up in every way possible, learned lots of valuable expensive lessons.

Last year, Murdoch launched a tablet-only news magazine called The Daily, which has so far been slow to make a major impact with consumers.

News Corp Chief Operating Officer Chase Carey has said he expects the company to focus more on building the digital monetization of the major media brands it already owns such as Fox, the Wall Street Journal and its various TV shows and movies rather than try to start new digital businesses.

(Reporting By Yinka Adegoke; Editing by Maureen Bavdek)

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