LOS ANGELES (Reuters) - It could be curtains for Napster unless it can forge a duet with the recording companies that have been trying to shut it down.

The wildly popular online song-swapping service, which has been told by an appeals court to stop its millions of users from trading copyrighted music, must either find the cash to pay mounting bills to keep a legal fight going or reach settlements with major record labels if it wants to survive.

"The challenge for them is how to go legit and still keep their business," said Bill Burnham, managing director of Softbank Venture Capital.

On Monday, the 9th U.S. Circuit Court of Appeals supported a District Court ruling that would effectively shut Napster down but asked the lower court to modify its original ruling. An injunction could be issued in days or weeks.

As millions of songs were being downloaded ahead of the injunction, Napster vowed to keep up the fight in the courts and in Congress.

Napster's Chief Executive Officer Hank Barry said the company has the financial resources to keep going and planned to continue discussions with record companies.

The longer Napster is shut down, however, the greater risk it faces of losing fan and brand loyalty, said Aram Sinnreich, analyst with Jupiter Media Metrix.

"This ruling will accelerate settlement talks with other major labels simply because Napster doesn't want to go for too long time with the service down," Sinnreich said. He said Napster was likely to sweeten terms to recording companies.

Many Napster users, which total more than 50 million, are already looking at alternative file-swapping sites to get their songs from once Napster is shut down.

Research firm Webnoize Tuesday said an estimated nearly 91 million songs were downloaded using Napster on Monday following the ruling, compared with 130 million on Sunday in anticipation of the appeal court's decision.

Analysts, such as Phil Leigh, of Raymond James and Associates believe that Napster -- which to date has only received about $17 million in venture capital funding and faces potentially billions in liability costs -- may run out of money.

Leigh compared Napster's predicament to that of Scour.com, another file-sharing community that was sued for copyright infringement and which filed for bankruptcy last October.

Scour's assets, including its name and membership lists were ultimately sold in December for about $9 million in cash and stock to CenterSpan Communications, which plans to relaunch the Web site as a subscription service.

"If Napster's active membership drops to a fraction of its current total, it may seek to sell its assets, which mightinclude the name and the membership list," Leigh said.

Under a deal announced in October, German media giant Bertelsmann AG (news - web sites) agreed to loan Napster an estimated $50 million to keep the site operating and help transform the service into a viable, fee-charging subscription service.

Leigh said Bertelsmann might be a logical buyer of Napster's assets, which could then relaunch the service with BMG content.

"Bertelsmann is also attempting to purchase EMI Group Plc (news - web sites)'s EMI Music Plc and if it can get access to the EMI catalogue, the reborn Napster under BMG ownership might have enough content to make an interesting subscription service," he said.