Part 4 (1/2)

One of Shawn's first important IRC contacts was another ambitious teenager, Sean Parker. Like Fanning, Parker grew up with computers. His mom was an infomercial media buyer. His dad was an oceanographer who'd grown up in the Cayman Islands and attended the Ma.s.sachusetts Inst.i.tute of Technology. He regaled Parker with stories of computers programmed with punch cards that took up entire rooms, and helped Sean learn to program on the family Atari 800 at an early age. Raised in Herndon, Virginia, outside Was.h.i.+ngton, DC, Parker had a supportive family and enough money to do the stuff he wanted to do. He was a decent computer programmer-he'd learned languages like Basic and C-but he was far more interested in building a business and making money. In high school, he bought model planes wholesale, then made a few hundred dollars marking up the prices and selling them. He had the gift of gab.

After Parker formed his own security company, Crosswalk, he started to talk with likeminded computer obsessives on IRC, and he soon met Shawn. ”We were basically hackers,” Parker says. ”But we had much broader interests than just technology-we were interested in the consequences of it and building things that people actually wanted to use.” But Parker spent only a small portion of his time on IRC. Mostly, he networked. His parents wanted him to go to college, but Parker took a year off to make contacts at business-oriented internet service provider UUNet. He was working there around the same time Shawn Fanning started his freshman year at Northeastern.

By January 1999, second semester, Shawn was working long hours on Napster code and very close to dropping out of college. His mother was disappointed, but John Fanning, by then saddled with tens of thousands of dollars in debt from his two failed businesses and legal fees, encouraged him. Uncle John incorporated Napster Inc. He took 70 percent of the business, giving Shawn 30 percent, despite Shawn's reluctance. That was a slightly better deal than most unknown musicians received when they signed to a major record label, but it was extremely bad business for nineteen-year-old Shawn. He agonized over it for years afterward, but always made the decision not to fight his uncle. As Shawn grew up, they developed a sort of love-hate relations.h.i.+p, squabbling and coming back together at unexpected times. Shawn followed a pattern that would soon be familiar to fellow Napster employees, throwing himself into work during times of stress. Shawn gave the first version of Napster to about thirty friends, mostly hacker types he'd met in the chat rooms, in June. Soon, almost fifteen thousand people had downloaded Napster from the internet. ”I had to focus on functionality, to keep it real simple,” Fanning later told Time Time. ”With a few more months, I might have added a lot of stuff that would have screwed it up. But in the end, I just wanted to get the thing out.”

Shawn's head was so filled with code that he didn't have the time or interest to focus on Napster as a business. His uncle took care of that. So did Sean Parker. Through Parker's friend Jonathon Perrelli, who was in charge of hiring for UUNet, he arranged a ”practice meeting” with an early potential investor. Parker recalls little about this meeting, but the preparation sticks in his memory. The Fannings flew to his northern Virginia house. ”I had been shopping the deal around northern Virginia in order to raise money. Shawn and I had made a lot of progress-building clients, building presentations, we had users, a company in place, all this work in place-and we had never met in person,” Parker says. ”They landed and took a cab to my house from Dulles Airport. The doorbell rings. I excitedly run to the door. It's Shawn and his uncle. [Shawn] said to me, 'You look exactly like what I expected.' And we immediately got down to running through our pitch.” The centerpiece of the pitch was a growth chart with a steep upward bent.

A bit later, Parker lined up the company's first concrete investor-Ben Lilienthal, who had in early 1999 sold his web email service Nascent Technologies to the huge Boston internet holding company CMGI. The internet boom was on. Early investors were put off by debts from John Fanning's failed companies, but Shawn's idea for Napster was too tantalizing to ignore for very long. After talking with Parker, Lilienthal set up a meeting with the Fannings and one of his New York contacts, an ”angel investor”-a term for venture capitalists who put in $1 million or less to help a company get started. Lilienthal and Jason Grosfeld flew out to visit the very first Napster office in an old hotel near John Fanning's house in Hull. The investors were shocked-they expected at least an Aeron chair, but all they found were open fast-food containers and Shawn hunched over his laptop on a card table. John Fanning wore shorts and tennis shoes. The investors tried to talk with Shawn, but John kept talking to them, boasting of the important people he knew in Silicon Valley. They were the first of many to realize the best possible way to deal with Napster was by maximizing contact with Shawn and minimizing contact with John. They brought up legal issues. The Fannings acknowledged they hadn't hired an attorney.

Nonetheless, weeks later, the two investors were ready to offer the three-man Napster crew a deal. Parker wrote up a business plan, in which Napster would try to get as much as 10 million users and try to sell them concert tickets and band merchandise. Lilienthal and Grosfeld hooked up a more powerful investor, Reston, Virginia, venture capital firm Draper Atlantic, and two of its executives agreed to meet Grosfeld, Lilienthal, the Fannings, and Parker at Grosfeld's apartment in downtown New York City. The Fannings showed up two hours late in a Z3 convertible with Shawn's Napster server in the backseat. The Draper executives made their offer-$500,000, with Lilienthal as CEO. Draper would take a minority stake in the company. John Fanning wanted more.

Negotiations heated up over the next few months, as both John Fanning and the Lilienthal group frantically researched the legal implications of Napster offering a ma.s.sive international free market for copyrighted music. But in the end, Fanning kept asking for more and more money-the price went up to $1 million at one point. They were two percentage points of Fanning equity away from a deal when Fanning started saying outrageous things like, ”How much do you have?” The investors backed out. That was just the first of many serious investment deals, worth hundreds of thousands of dollars, that derailed at the last minute thanks to Uncle John. ”John is a gamer. He carries that over into every aspect of his life,” Parker says. ”John treats people like objects on a chessboard-they move in completely logical ways. But that's just not the way most people are, especially sophisticated people. It's not that black and white. He would get caught up in the game of it all and rub a lot of people the wrong way.”

Miraculously, Parker's contacts and John Fanning's machinations led to a bona fide investor. Yosi Amram was a Tel Avivborn Harvard Business School student who first encountered John as a chess opponent in the public games at Harvard Square. (At first, Amram says, he was the better chess player, but Fanning practiced for longer hours and caught up.) Amram was smart and cultured, and the style of chess he favored-blitz-was so fast it barely gave the players time to think about their next moves. Amram founded an internet start-up, Individual, with his savings. He set it up for a $200 million initial public offering in 1996, made a lunkheaded purchase of web-surfing software company Free-loader for $38 million, and ran Individual into the ground.

Still, Amram had a lot of money to invest in a start-up. He moved to Silicon Valley to be closer to the action and was soon approached by his old friend John Fanning. Amram didn't consult a lawyer. He didn't check out the legal implications. He made a quick decision-over a period of a few weeks, as he recalls-to invest $250,000 for 1.25 million shares. ”This was kind of the height of the internet boom, so money was easy,” Amram says. ”Today, I would have probably spent more time and effort thinking about making a quarter-million investment.” Amram had some conditions: He wanted to pick the CEO, he would serve on a three-member board, and the company would move to Northern California so he could be more involved in its operations.

Shawn Fanning and Sean Parker packed their stuff, boarded planes, and moved to Silicon Valley.

EILEEN R RICHARDSON CAME to Napster via a circuitous route. She was born to a poor family in Middletown, New York, with a father who built docks before quitting work for good due to disability, and a staunchly Catholic mother who emigrated from Ireland. Eileen's mother encouraged her to find a husband, and quick. She took the advice, marrying a West Point cadet at age twenty-one. ”We got very, very poor, very quickly,” Richardson says. ”And I realized: I'm a Democrat and he's a Republican, and that didn't make it easy.” They had two kids, and while her husband aspired to live in upstate New York, Eileen had broader ambitions. After moving around with him to various military bases after he graduated from West Point, she'd had enough. They divorced. She kept the kids. to Napster via a circuitous route. She was born to a poor family in Middletown, New York, with a father who built docks before quitting work for good due to disability, and a staunchly Catholic mother who emigrated from Ireland. Eileen's mother encouraged her to find a husband, and quick. She took the advice, marrying a West Point cadet at age twenty-one. ”We got very, very poor, very quickly,” Richardson says. ”And I realized: I'm a Democrat and he's a Republican, and that didn't make it easy.” They had two kids, and while her husband aspired to live in upstate New York, Eileen had broader ambitions. After moving around with him to various military bases after he graduated from West Point, she'd had enough. They divorced. She kept the kids.

Richardson moved to Boston and tried to figure out what to do. She stumbled onto a venture capital company, Atlas, which had been looking for a new employee for nine months. They loved her aggressive, fast-talking personality and agreed to give her a secretarial job and pay for her MBA education. ”I did everything,” Richardson says. She answered the phone, made coffee, did research, and got promoted-a lot. Within six years, she says, she'd landed deals with Firefly, a start-up with a model of recommending music to internet listeners based on their preferences, as well as Vermeer Technologies, developer of a publis.h.i.+ng tool that would become Microsoft's FrontPage. Suddenly other companies, like Forrester Research, heard about her and started trying to hire her away.

Richardson landed at JK&B Capital, a Chicago venture firm that gave her a partners.h.i.+p. Through a young salesman whom she would later hire as a Napster executive, Bill Bales, she snagged a deal with a web content-management company, Interwoven Inc. She convinced JK&B to invest $5.2 million, and it wound up gaining $438 million. Richardson was a first-cla.s.s networker. One of her contacts in the early 1990s was Yosi Amram. He met with her one day to discuss companies he was working with, like the tech start-up Xtime, then disguised as something called the Palo Alto Coffee Co. She mentioned she might be interested in working as an investor and executive for other companies, and Amram brought up Napster. Richardson went home and checked out the website. She was a music fan-any kind of house or club music, and alt-rockers like Nine Inch Nails-but couldn't hit the clubs due to her two young kids. So Napster made sense, immediately. ”What I wanted to do with Napster was never, ever, steal music,” she says. ”The first idea of ninety-nine cents a song was mine! You could find and buy music for a dollar a song instead of seventeen bucks for sixteen songs that you hate. That was the idea.” Amram told Richardson about John Fanning, and how he could be difficult, confounding otherwise easy negotiations and inserting himself into parts of the company where he had very little expertise. Amram promised he could handle Uncle John. Convinced, Richardson bought 333,000 shares from Fanning. She joined Amram and John Fanning on the Napster board.

Meanwhile, Shawn Fanning and Sean Parker were itching to move into real offices. For their first few months in California, they stayed at Russian chess master Roman Dzindzichashvili's house in Sausalito, taking care to be totally silent while he paraded children through the house for chess lessons conducted in his booming voice. ”I kind of forgot about that phase,” Shawn says today. ”It was a really weird experience.” Parker and Fanning would soon find an $1,800-a-month San Mateo apartment with a six-foot widescreen television. Like most men in their early twenties, they weren't exactly all-star housekeepers, and more than one visiting reporter observed empty pizza boxes and soda cans lying around the rented furniture. Shawn wasn't especially flamboyant, but he drove a custom Mazda RX-7 and politely shook hands and exchanged greetings with strangers who spotted him at the mall. He was also a gym rat, playing hoops a few times a week and working out frequently.

Napster moved to the top floor of an old bank building in San Mateo. Parker and Fanning were too young to rent cars and had no credit cards, but they were the heads of a company that would ultimately change the world. They were surrounded by executives who were even more enthusiastic than they were, like Richardson and her second-in-command, Bill Bales, newly installed as vice president of business development. ”I would put on a presentation for Bill and Eileen, and halfway through, she would start screaming and running around the office, saying, 'We have so much to do!'” Parker told Joseph Menn in the definitive Napster biography, All the Rave All the Rave. ”Bill would say, 'That's brilliant! We're going to be a $10 billion company!' And I would say, 'Wait, I'm not finished yet.'” At one point, on Richardson's invitation, former Warner Music high-tech executive Ted Cohen showed up to interview as the next CEO. He walked into the office to find a young man sleeping on the floor with his head on a motorcycle helmet. Cohen woke him up, introduced himself, and asked for Richardson. ”Oh, I'm sure they'll be out soon,” said the kid, and went back to sleep. That was Shawn Fanning.

It became fairly clear fairly quickly that Napster had no central business plan-other than the obvious, which amounted to ”generate a huge user base by allowing fans to trade copyrighted music.” The company's top executives disagreed on strategy. Some wanted to charge a monthly subscription fee, like the phone company. Others wanted to sell merchandise. Richardson kept advocating for her charge-by-the-song plan. She figured this would be great exposure for lesser-known artists. ”John Fanning absolutely was completely thinking a different thing: 'We will take down the music industry and give away free stuff,'” she recalls. Fanning made comments to that effect in business magazines, which didn't exactly make RIAA people like Hilary Rosen and Frank Creighton very happy. It also didn't put them in the mood to make a deal with Napster.

A week after Creighton first talked to Richardson, she called back. This time, Richardson knew much more about the legal issues. She suggested Napster was totally legal given the US Supreme Court's groundbreaking 1984 decision legalizing Sony's Betamax for home-taping TV shows. She refused to shut down Napster per his request. Rosen got the message. On October 27, 1999, Rosen instructed the RIAA lawyers to draft a complaint.

Richardson recalls her two phone conversations with Creighton. For the first, he was cordial. For the second, she says, ”The whole tone changed. It was like, 'Listen, you come talk to us, but I'm telling you right now, you really need to think about shutting things down before we talk.' Then the next conversation was with Hilary.” Richardson told Rosen about the plan to charge for music and break new artists over an exciting new medium. Rosen responded: Take down all the signed artists from the site, and we'll talk. Richardson asked for a list. At this point, both women say, the conversation turned ugly.

Rosen remembers Richardson as ”either a really bad manipulator or naive. Because she didn't get it. She really didn't get the piracy aspect of it for several days.”

”It was her job to lobby for the record industry and here's this huge, looming thing-of course she's going to be a little stern,” Richardson says. ”I remember seeing someone [in the media] said, 'I'm a b.i.t.c.h to [Rosen].' But believe me, it was vice versa.” The RIAA prepared for war. she's going to be a little stern,” Richardson says. ”I remember seeing someone [in the media] said, 'I'm a b.i.t.c.h to [Rosen].' But believe me, it was vice versa.” The RIAA prepared for war.

For Shawn Fanning, the main challenge of running Napster was making sure the servers kept up with the demand. He had help-Jordan Ritter joined the company, as did Ali Aydar and longtime software pirate and IRC regular Jordan Mendelson. As of October 7, 1999, the company had 150,000 registered users, trading 3.5 million files-and was expanding by who-knows-how-much every day. (The numbers were a little skewed, since users could register multiple times, but Napster was unquestionably growing at an extraordinary rate.) Thanks to the efforts of Richardson and Yosi Amram, a new wave of venture capital came in, totaling $2 million, from angel investor Ron Conway as well as internet-boom stars like Excite founder Joe Kraus and Napster's own head of engineering, a new employee named Eddie Kessler.

A former engineer with Quote.com, Kessler hooked up with the Napster crew through a connection. He met one day with Aydar, Ritter, Shawn Fanning, and Sean Parker and came away unimpressed-good idea, he thought, but poor, unstable design. Richardson offered him a job. John Fanning called to tell Kessler he was certain Napster would soon be worth $10 billion. Kessler was hesitant, because he had a wife and four-year-old daughter and was worried about spending too much time in the office during a legendary period of Silicon Valley overworking. Richardson a.s.sured him he'd have to work late two days a week and only occasionally on weekends.

What finally sold Kessler was his own tour of the Napster software. He found music he hadn't heard since college, which was only available on hard-to-find vinyl singles. He signed on. The work was great. He liked most of the people, although some didn't like him-according to Menn's All the Rave All the Rave, a few employees complained that Kessler took credit for their work, and he often dragged his feet on deadlines for new versions of the software. In any case, the stress weighed on him. ”One of the tragedies of this was I really didn't get to see my family for two years. I would call my home in the early evening and talk to my daughter and she would say, 'Are you going to be home for dinner?'” Kessler says. ”I had a BlackBerry and two cell phones. We scheduled seven vacations over two years and all of them got canceled. Everything was clearly insane.” Shawn Fanning, still not even twenty-one, with no family of his own, was more equipped for the long hours and endless stress of maintaining Napster. Many employees at Napster recognized Shawn as a compulsive workaholic. ”There's no question it was exciting and stressful. We were always at capacity,” he says. ”Every time they put servers up, they filled with simultaneous users and we hit the capacity again.”

The challenges were many and difficult. In November 1999, one of Napster's servers maxed out at a far-too-low 1,000 users. The team kept buying more servers, until somebody figured out the cap was a result of bad code. Once they fixed it, traffic quickly doubled on each server. The Napster crew danced to N.W.A. on company tables. Another time, Shawn found a bug that shrunk users' music files at the last minute, allowing them to share severely damaged songs. He personally worked on that one for two weeks, then came up with a patch for the client software. ”One of the most stressful experiences ever,” he says. On the rare occasions they took time off from work, Shawn and Parker blew off steam at Bay Area raves.

When the RIAA filed its copyright-infringement lawsuit on December 6, 1999, in US District Court in San Francisco, it surprised no one at Napster. Few of the company's starry-eyed employees thought Napster could possibly lose. When Ted Cohen was interviewing to be Napster's next CEO, he noticed whiteboards all over a Napster conference room. On one was scrawled the phrase: ”How to Talk to the Press.” Underneath, it said, ”If they call to say, 'Don't you know this is illegal?,' say, 'We didn't know it was illegal-we think it's fair use.'” ”It was all deflection points,” says Cohen, who turned down the Napster job and later went to work as EMI Music's top high-tech executive. ”It was basically to convince the press 'we're good guys.' A lot of it wasn't true.” Still, the lawsuit had the immediate effect of generating stratospheric publicity for Napster and its young executives. Within a few months, the Los Angeles Times Los Angeles Times and the and the New York Times New York Times slotted Napster on the front page, and MTV crews showed up to interview Shawn Fanning and Parker. The two friends would turn on cable at night and, watching in a surreal daze, see themselves on MTV. The number of total system users grew from 50,000 when the RIAA filed suit to 150,000 by the end of the same month. Shawn Fanning, in his baseball cap, T-s.h.i.+rt, jeans, and blank, aw-shucks expression, was suddenly a rock star, though he didn't think so. ”Rock stars and people that play music seriously-they know when they're successful, there's a certain fame a.s.sociated with that,” he says. ”When you're writing software, it's the last thing you expected. Long coding sessions don't go well with camera interviews, even back to back.” But he had charisma, and Richardson smartly turned Shawn into the face of the company. slotted Napster on the front page, and MTV crews showed up to interview Shawn Fanning and Parker. The two friends would turn on cable at night and, watching in a surreal daze, see themselves on MTV. The number of total system users grew from 50,000 when the RIAA filed suit to 150,000 by the end of the same month. Shawn Fanning, in his baseball cap, T-s.h.i.+rt, jeans, and blank, aw-shucks expression, was suddenly a rock star, though he didn't think so. ”Rock stars and people that play music seriously-they know when they're successful, there's a certain fame a.s.sociated with that,” he says. ”When you're writing software, it's the last thing you expected. Long coding sessions don't go well with camera interviews, even back to back.” But he had charisma, and Richardson smartly turned Shawn into the face of the company.

Against his will, Fanning became a sort of folk hero. He took on the record labels, which didn't have the best public image. They were always landing in scandals, such as the Mob-connected independent radio promotion imbroglio of the 1980s. For years, label executives had reputations for taking advantage of artists, especially young and inexperienced ones-many of whom didn't even know the labels had been deducting archaic, LP-era ”packaging rates” out of their CD royalties for years. But in earlier days, the top execs had been funny, fiery, talkative characters like Walter Yetnikoff of CBS or erudite, well-respected gentlemen like Mo Ostin of Warner Music. They had a knack for changing the agenda, behind the scenes and in the media, whenever an irritating subject like ”how much artists get paid” came up. They also had a knack for making talented musicians very, very rich. But in 2000, Yetnikoff and Ostin were gone, replaced with less colorful corporate executives from Seagram and Sony who didn't crave the limelight.

In this new record business environment, Napster had the effect of empowering artists like the irrepressible Courtney Love of Hole. In January 2000, Love declared her Universal Music contract ”unconscionable” and announced she wouldn't deliver the records she owed to the company's Geffen Records. Universal sued. She countersued.

This sort of thing happens all the time; usually, the cases are settled and everybody quietly goes home to count their money. Love did so, too, in 2002. But first, she delivered a famous speech at the Digital Hollywood conference, reprinted in Salon.com as ”Courtney Love Does the Math.” This is how she broke it down: A top band gets a million-dollar advance; the band spends half a million to record its alb.u.m, $100,000 on a manager, and $50,000 on lawyers and business managers. The four band members then get $180,000 after taxes, or $45,000 per person for a year. Then the band sells 1 million records, and receives no royalties after expenses. According to Love's math, the record label gets $4.4 million.

Yes, Napster users were engaging in theft. But their stick-it-to-the-man righteousness drew much of the public to their side, and major labels were taking the biggest public relations. .h.i.ts they'd ever absorbed. ”It just grew and grew. Shawn becomes a cultural phenomenon. Presidential candidates are asked about it in debates,” Hilary Rosen says. ”The intensity with which the industry was under siege was huge.”

Most Napster users were college students. Indiana University tried to ban the software on campus because it sucked up so much bandwidth, but a feisty computer science soph.o.m.ore, Chad Paulson, chastised the administration on free-speech grounds. IU backed down. Napster supporters reasoned: The record labels have screwed us for years! They charge $18 for two good songs! Backstreet Boys suck! They latched on to Fanning as a symbol, a rebellious David-vs.-Goliath type who invented the coolest slingshot ever.

To some, this spirit reeked of rock 'n' roll-or at least a more efficient way of selling records. At Universal Music, new-media chief Erin Yasgar wore a Napster T-s.h.i.+rt to staff meetings. ”Some people got it and there were some laughs,” she recalls. ”Some people, not so much.” Mark Ghuneim, Sony Music's senior vice president of online and emerging technology, spent the 2001 Super Bowl halftime show studying Napster-and noticing a ma.s.sive surge in tracks by performers Aerosmith, Britney Spears, and the Backstreet Boys. The next day, he walked into work to see about reissuing singles to take advantage of the popularity spike. It turned out to be impossible. Labels didn't put out singles anymore. And they couldn't make any new product available in fewer than twelve to fourteen days. That would have been too late. ”Those opportunities met with failure,” Ghuneim says, ”because everybody was afraid it was going to start a precedent.”

With or without major labels, several artists figured out how to harness the power of Napster on their own: In 2000, Radiohead promoted its experimental jazz-rock Kid A Kid A by secretly releasing tracks to the service, winding up with its first-ever No. 1 alb.u.m. Dispatch, a young reggae-rock band, flooded Napster with free recordings and, over time, grew its audience-to the point that the band would sell out multiple nights at Madison Square Garden in early 2007. ”We were saying, 'It's a new form of radio where people can get music out there, and it doesn't have to have too many strings attached to it,'” recalls Pete Heimbold, the band's ba.s.sist. ”What we found was it really didn't deter from kids coming to shows and buying CDs. In fact, I think it had the opposite effect-people heard songs off Napster and had a lot of merchandise and CDs.” by secretly releasing tracks to the service, winding up with its first-ever No. 1 alb.u.m. Dispatch, a young reggae-rock band, flooded Napster with free recordings and, over time, grew its audience-to the point that the band would sell out multiple nights at Madison Square Garden in early 2007. ”We were saying, 'It's a new form of radio where people can get music out there, and it doesn't have to have too many strings attached to it,'” recalls Pete Heimbold, the band's ba.s.sist. ”What we found was it really didn't deter from kids coming to shows and buying CDs. In fact, I think it had the opposite effect-people heard songs off Napster and had a lot of merchandise and CDs.”

”I hit a point where I was convinced that there was no next big thing in the music business except technology. It wasn't going to be a sound or a dropped D chord or a new way of looking or a style-it was going to be technology,” adds Liz Brooks, a longtime A&R rep who worked at Virgin and Sony before quitting the business to be Napster's vice president of marketing. ”Napster was like this cult piece of software-a lot of people in a certain age group were aware of it, and yet n.o.body else was aware of it.” Some bands saw the same thing-Limp Bizkit headlined a Napster-sponsored concert tour in 2000. The Offspring, a Southern California punk band, supported Napster, and its manager, Jim Guerinot, filed an amicus brief in court on Napster's behalf.*