Part 4 (2/2)

The record industry did its best to turn back the David-vs.-Goliath aspect of the story. This is theft theft, the RIAA kept reminding people. ”If you can come up with another way of artists being paid for their work, I'm all for it,” says Bill Allen, a Napster opponent who at the time was BMG's director of new technology. ”But right now the system we have is copyright. It's only fair that artists get paid for their work.” Eminem, the world's biggest rapper, declared: ”If you can afford a computer, you can afford to pay $16 for my CD.” Dr. Dre sued. So did Metallica, in April 2000, and drummer Lars Ulrich gave heartfelt interviews saying the metal band deserved to get paid for its music. Metallica had a point, but it grossly underestimated its own fans' newfound loyalties to Napster. Suddenly, Metallica, which had made a career of liberally allowing fans to tape its concerts, was Enemy Number One of the People. ”Leave Napster alone,” declared the online graffiti on Metallica's hacked official website. One Napster fan later created a viral cartoon, ”Napster Bad!,” depicting singer James Hetfield as a monosyllabic baboon. ”Napster spun it cleverly, like 'Metallica is suing their fans,'” recalls Joel Amsterdam, then the band's publicist for Elektra Records. ”That was unfortunate. [The band members] certainly hated that part of it.”

In May 2000, on advice from his attorneys Howard King and Peter Paterno, Ulrich made the provocative move of calling a press conference at Napster's offices in San Mateo. He showed up in a limo with thirteen boxes full of paper listing the names of Napster users sharing Metallica songs. Napster's executives were prepared. They'd alerted a group of users, who a.s.sembled outside the company's offices to protest the press conference. They shouted ”f.u.c.k you, Lars!” as he walked from the limo to the building. At Ulrich's side, King demanded that Napster ban all Metallica songs from its service. Afterward the attorney and the drummer rode up the elevator to the company's fourth-floor offices. Employees gathered around and declared themselves fans. Ulrich picked up on the fan-vs.-attorney dynamic and slowly grew less inflammatory and more conciliatory as the events of the day wore on. ”I really don't want to sue you,” he told the crowd. ”All I want is for artists who want to get paid to get paid.” Shawn Fanning, Sean Parker, and Ali Aydar were supposed to stay on the fifth floor, away from the circus, but they drifted down, incognito, to check it out. One overzealous Napster employee even approached Ulrich for his autograph. The showdown ended civilly, and Ulrich and King left the building after saying what they had to say. A few days later, Napster announced it would comply with Ulrich's request. The company blocked 317,377 users from a list it received from Metallica.

BY JULY 2000, 2000, almost almost 20 million 20 million users were on Napster. In September, Shawn Fanning introduced Britney Spears at MTV's Video Music Awards; he wore a Metallica T-s.h.i.+rt and joked to VJ Carson Daly about somebody sharing it with him. In October, he hit the cover of users were on Napster. In September, Shawn Fanning introduced Britney Spears at MTV's Video Music Awards; he wore a Metallica T-s.h.i.+rt and joked to VJ Carson Daly about somebody sharing it with him. In October, he hit the cover of Time Time in his trademark bowl-cup headphones. (In the company's crisp, clever logo, a rebellious cartoon cat wore the same headphones.) The same month, he was a presenter at the Rave Awards in San Francisco, sharing the stage with Courtney Love, who flirted with him in her outrageously exaggerated way, calling him ”my future husband” and sitting in his lap. Eileen Richardson was constantly on the phone, talking to the likes of Fred Durst of Limp Bizkit, Chuck D. of Public Enemy, and Mike D. of the Beastie Boys, trying to make deals. Guy Oseary, who ran Madonna's label, Maverick, invited Richardson to the Material Girl's office in Los Angeles. As a pregnant Madonna lounged in the background, Oseary discussed a Maverick investment of $1 million. But no major artist ended up investing. ”The RIAA went on the huge tour to everyone and opened up their laptops and said, 'Watch this' and 'This will be the end of you,'” Richardson says. in his trademark bowl-cup headphones. (In the company's crisp, clever logo, a rebellious cartoon cat wore the same headphones.) The same month, he was a presenter at the Rave Awards in San Francisco, sharing the stage with Courtney Love, who flirted with him in her outrageously exaggerated way, calling him ”my future husband” and sitting in his lap. Eileen Richardson was constantly on the phone, talking to the likes of Fred Durst of Limp Bizkit, Chuck D. of Public Enemy, and Mike D. of the Beastie Boys, trying to make deals. Guy Oseary, who ran Madonna's label, Maverick, invited Richardson to the Material Girl's office in Los Angeles. As a pregnant Madonna lounged in the background, Oseary discussed a Maverick investment of $1 million. But no major artist ended up investing. ”The RIAA went on the huge tour to everyone and opened up their laptops and said, 'Watch this' and 'This will be the end of you,'” Richardson says.

Richardson kept working her old venture capital contacts for more funding. At one point, she had what she describes as ”three of the finest and best venture firms”-including Kleiner Perkins Caufield & Byers, where she was dealing with the influential former Intel sales giant John Doerr-lined up to contribute $85 million. ”Well, that was not enough for John Fanning,” she recalls. To this day, Richardson is convinced Doerr and his connections could have rescued Napster. Instead, she says, John Fanning blew up the deal and went to a smaller financing firm, Hummer Winblad, which quickly agreed to give Napster $65 million for a 20 percent share. Hummer then pushed to replace the excitable Richardson with corporate lawyer Hank Barry. Richardson, who never intended to stay more than six months, quit. Barry's first job at Napster was to deal with the RIAA lawsuit.

He had reason to be optimistic. In the late 1990s, issues involving MP3s, file sharing, and digital copyrights were part of a larger, unexplored legal terrain. A 1984 US Supreme Court precedent seemed perfect for Napster. In Sony Corp. of America vs. Universal City Studios Sony Corp. of America vs. Universal City Studios-widely known as the ”Sony Betamax case”-the court ruled 54 that Sony could manufacture VCRs for people to record copyrighted TV shows for their own use. Napster figured the same logic would apply here. Napster itself wasn't actually infringing infringing anybody's copyrights. It was merely functional, a middleman, like the VCR. Napster couldn't possibly police the service for copyright violations, just as a telephone company like AT&T couldn't possibly be responsible for whatever illegal plans people made over the phone lines. There was also the Audio Home Recording Act, pa.s.sed by Congress in 1992, which allowed consumers to make taped copies of their own alb.u.ms-as long as they didn't sell them. Finally, there was the Digital Millennium Copyright Act of 1998, which gave ”safe harbor” to internet service providers as long as they didn't actively encourage illegal behavior. ”We felt that they had a pretty good case,” Barry says. ”When I took this to my partners, we said, 'Look, [Napster] could lose and we could lose all our money. Or they could win and it could be a chance for the first spectacular social networking company.'” anybody's copyrights. It was merely functional, a middleman, like the VCR. Napster couldn't possibly police the service for copyright violations, just as a telephone company like AT&T couldn't possibly be responsible for whatever illegal plans people made over the phone lines. There was also the Audio Home Recording Act, pa.s.sed by Congress in 1992, which allowed consumers to make taped copies of their own alb.u.ms-as long as they didn't sell them. Finally, there was the Digital Millennium Copyright Act of 1998, which gave ”safe harbor” to internet service providers as long as they didn't actively encourage illegal behavior. ”We felt that they had a pretty good case,” Barry says. ”When I took this to my partners, we said, 'Look, [Napster] could lose and we could lose all our money. Or they could win and it could be a chance for the first spectacular social networking company.'”

But if the RIAA lawyers could prove that Napster knew about its users pirating copyrighted music, they could easily show the judge that Napster was hardly an innocent middleman like a VCR manufacturer or an internet service provider. Napster employees were generally careful not to acknowledge its users pirated music-even though surveys showed almost every song shared over the system was copyrighted. When the RIAA attorneys asked for internal Napster doc.u.ments during a phase of the lawyers' investigation known as the discovery process, they received boxes and boxes. They pored over them for weeks. Finally, after a long day's work, attorney George Borkowski came across an internal email from Sean Parker to Shawn Fanning: ”Users will understand that they are improving their experience by providing information about their tastes without linking that information to a name or address or other sensitive data that might endanger them (especially since they are exchanging pirated music).”

Borkowski had to blink at that last part. Exchanging pirated music? Exchanging pirated music? Parker admitted it, right there in an email, albeit one never intended for outside eyes. Borkowski and partner Russell Frackman, who had worked for years on RIAA piracy cases even though he was so low-tech he didn't even use email himself, couldn't believe it. They deposed Parker the next day. He squirmed. And just like that, the case was all but over. Parker admitted it, right there in an email, albeit one never intended for outside eyes. Borkowski and partner Russell Frackman, who had worked for years on RIAA piracy cases even though he was so low-tech he didn't even use email himself, couldn't believe it. They deposed Parker the next day. He squirmed. And just like that, the case was all but over.

Hank Barry still had a few cards left to play. He called litigator David Boies, who had represented the US Justice Department in its ant.i.trust trial against heavily favored Microsoft in what many called ”the cyber trial of the century.” At first, Boies didn't return Barry's call. But later that week he was eating dinner with his family, and three of his sons-two in their early thirties and one in his teens-told him how important the case would be and insisted he take it on. Boies did, but he immediately ran up against Marilyn Hall Patel, US District Judge in San Francisco.

On July 26, 2000, when Patel began the trial in a courtroom packed with hundreds of journalists and Napster supporters and opponents, David Boies tried to make the relevant arguments. He mentioned VCRs and the Audio Home Recording Act. Patel cut him off several times. She cited Parker's ”exchanging pirated music” email. After both sides were through, Patel left the bench for half an hour. When she came back, she announced that she'd decided in favor of the recording industry. ”Plaintiffs have shown persuasively,” she wrote later in her opinion, ”that they own the copyrights to more than 70 percent of the music available on the Napster system.” Napster had to remove all copyrighted material from its service, essentially shutting down the whole thing, within two days. ”Oh my G.o.d,” Shawn Fanning said to himself, seated in the courtroom. ”What in the world is going on here?”

There was a reprieve. Sitting on the three-judge Ninth Circuit Court of Appeals was Alex Kozinski, a President Reagan appointee who fancied himself a cutting-edge technology enthusiast. He wrote columns for the online magazine Slate.com. Kozinski convinced one of his fellow judges, Barry Silverman, to stay Patel's injunction against Napster and hear the case. Napster employees celebrated. ”This is like the playoffs,” John Hummer, ex-NBA-basketball-player-turned-venture-capitalist, said at the time. ”They won the first game, and we won the second game. It's going to seven, and we're going to win it.” But Hummer was missing one important piece of information. Kozinski wouldn't be on the Ninth Circuit panel that would rule on Napster's injunction.

UNBEKNOWNST TO MOST people outside Napster or the upper echelons of the record industry, in the days leading up to Judge Patel's decision, Hank Barry had been aggressively using all the wheeling-and-dealing skills he had. At this point, he wasn't sure whether Patel would rule for or against Napster, so he started meeting with the heads of major record labels to try to make a deal. His first call was to Edgar Bronfman Jr., who was, at least in public, one of Napster's strongest opponents. Bronfman, chief executive officer of the Seagram Co., which had purchased Universal Music a few years earlier, had given a speech earlier that year likening Napster to ”both slavery and Soviet communism,” according to people outside Napster or the upper echelons of the record industry, in the days leading up to Judge Patel's decision, Hank Barry had been aggressively using all the wheeling-and-dealing skills he had. At this point, he wasn't sure whether Patel would rule for or against Napster, so he started meeting with the heads of major record labels to try to make a deal. His first call was to Edgar Bronfman Jr., who was, at least in public, one of Napster's strongest opponents. Bronfman, chief executive officer of the Seagram Co., which had purchased Universal Music a few years earlier, had given a speech earlier that year likening Napster to ”both slavery and Soviet communism,” according to The Atlantic The Atlantic. The former songwriter was nonetheless crucial to Barry's purposes, as Universal had grown into the biggest worldwide record label, thanks to hits from Eminem, Dr. Dre, No Doubt, and others. But Bronfman also saw that the labels could make a lot of money if they had direct access to Napster's 22 million users-in addition to selling them music over the internet, they could also figure out what type of music they liked and target them with marketing pitches and sales. He agreed to meet with Barry.

Despite Bronfman's Soviet metaphor, he was not Napster's biggest opponent in the record industry. Neither were other international media moguls whose holdings included major record labels. Sony Corp. co-CEO n.o.buyuki Idei was willing to talk, even though he said in later interviews that j.a.panese law prohibited a service like Napster. So was Thomas Middelhoff, head of Bertelsmann, which owned BMG Entertainment. Most of the record industry's anti-Napster brigade was a step lower down the executive ladder: Sony Music's Tommy Mottola and Michele Anthony, Universal's Zach Horowitz and Doug Morris, and BMG's Strauss Zelnick, all of whom perceived online music sharing as theft, plain and simple, and had no interest whatsoever in jumping into bed with their sworn enemy. ”It became clear that [Bronfman, Middelhoff, and Idei] had very little control over what their record companies ended up doing,” says a record industry source. ”They basically threw up their hands at their own [subordinate] executives.”

Yet Bronfman recalls: ”I very much wanted to make a deal with Napster. I thought it made sense for the industry.” Bronfman and Barry talked several times-at Universal's office in Los Angeles, at the Seagram Building in New York, at an airport in San Francisco. Behind the scenes, Barry's boss at Hummer Winblad, John Hummer, told Barry to pursue a deal in which the labels would share 10 percent of Napster's future revenues. (Although the company had yet to make revenues from its business plan and was running mostly on venture capital, record company executives could see huge potential profits by selling advertising on the service or even charging users for downloading songs.) Bronfman told Barry to be more creative. The deal on the table, as Barry recalls, was for all five of the major labels to equally share a 60 percent stake in Napster, as well as 90 percent of the voting power over company decisions. ”These were business meetings,” Barry says. ”These weren't like 'OK, you terrible guy.' These were like 'Let's look at the spreadsheets and make this work.'”

These discussions peaked on July 15, 2000, when Barry and Hummer met privately with record executives in Sun Valley, Idaho. Bronfman invited some of his colleagues-Sony's Idei, Bertelsmann's Middelhoff, head of Sony US Howard Stringer, and several aides-to the meeting at investment banker Herb Allen's annual conference of media power brokers. (Executives for Warner and EMI, the other two major labels, were embroiled in merger talks at the time, and Bronfman didn't think it made sense to include them-but they, too, authorized him to speak for their interests.) Middelhoff walked in and noticed immediately that none of the label executives, not even Bronfman, were sitting on the same side of the long table as Napster. He made a joke of squeezing himself into the remaining chair, between Hummer and Barry. After a few awkward seconds, Barry recalls, Bronfman then said, ”Thomas, your seat's over here here”-and Middelhoff dutifully moved to the other side of the table.

By that time, label and Napster executives were even farther apart than they'd started out. As Bronfman recalls, Barry wanted something like a 5050 split of Napster's future equity, while the record industry wanted more than 90 percent. Although Bronfman recalls a nonetheless friendly, cordial relations.h.i.+p with the Napster people, particularly Barry, Middelhoff says he could tell from the minute he walked into the Sun Valley meeting that the Napster people and the label people didn't really like each other. Bronfman did all the talking. Major players like Idei, Stringer, and Middelhoff said little. Hummer and Barry made their points. After ten minutes, it was over. ”This was an unbelievably brief meeting,” Middelhoff says, still shocked at the disconnect between the importance of the subject and the length of the discussion. ”John Hummer and Hank Barry were not ready to move any of their positions. Neither was Edgar Bronfman.” But the meeting was long enough for Napster's business model to make a lasting positive impression on Middelhoff.

The meeting sealed the fate of the whole negotiation. Hummer went ”radio-silent” for days, Bronfman remembers, and finally called back later in July with bizarre news. In Bronfman's version of the story, the venture capitalist told him he had another deal on the table-for $2 billion. He wanted to know if Universal Music had a compet.i.tive offer. ”Please think about it,” Hummer said. Bronfman was stunned. ”I don't need to think about it, John,” he replied, on the spot. ”I'm not interested in $2 billion. Frankly, if you get 10 percent [of that], you should celebrate it. Come to think of it, if you get 1 percent, you should celebrate. Good luck.” ”There was obviously no deal,” Bronfman says today. ”He was bluffing.” Even years later, it's difficult to unravel just where that alleged $2 billion offer came from. Bronfman recalls Hummer strongly implying the source was America Online. Bronfman also spoke with Yahoo!'s Jerry Yang, who said Hummer told him the offer came from AOL. But in an interview for this book, Hummer denies claiming he had such an offer. And George Vradenburg, AOL's general counsel at the time, acknowledges his company was very interested in making a deal for Napster, but no executive ever made an offer-and certainly didn't discuss a number as eye-popping as $2 billion. In any event, negotiations broke down. Days after Bronfman spoke with Hummer for the last time, Judge Patel's injunction came in. Soon after that, Barry proposed a 50 percent owners.h.i.+p split to Napster. But the deal with the labels was dead.

That was the last chance for the record industry as we know it to stave off certain ruin.

To an extent, the opposition from executives at the major labels was understandable. Napster was enabling and encouraging theft, no matter what the internet's ”information wants to be free” contingent was saying at the time. The courts, beginning with Judge Marilyn Patel, would consistently rule that file-sharing services trading in illegal music were engaged in copyright infringement. But label chiefs were so bogged down in the file-sharing battleground that they refused to act on the digital future of the business. Many figured they would simply win in the courts and the CD-selling business would go back to normal. As a result, they wasted almost three critical years before agreeing to a functional, legal song-download service.

Several internet-savvy underlings at major labels saw exactly what was about to happen-Albhy Galuten of Universal Music and Mark Ghuneim of Sony Music, to name two. But the majority of executives preferred to cling to the old, suddenly inefficient model of making CDs and distributing them to record stores. In this world, the labels controlled-and profited from-everything. From Michael Jackson's Thriller Thriller to 'NSync's to 'NSync's No Strings Attached, No Strings Attached, the old system made them richer than ever. Also, these executives knew all too well that Napster wasn't the old system made them richer than ever. Also, these executives knew all too well that Napster wasn't theirs. theirs. The CD, at least, had come from Sony and Philips, two familiar companies with long-standing record industry relations.h.i.+ps. This new music distribution system belonged to a snot-nosed punk and his crazy uncle. The CD, at least, had come from Sony and Philips, two familiar companies with long-standing record industry relations.h.i.+ps. This new music distribution system belonged to a snot-nosed punk and his crazy uncle.

Executives also felt they couldn't plunge into a deal with Napster because of their contracts with thousands of artists, song publishers, and retail stores. Publishers, for example, had been getting rich for decades off the mechanical royalties (the seven or eight pennies that go to songwriters for every alb.u.m sold in a store) from Elvis Presley or Michael Jackson sales. They didn't want to lose their meal tickets, and might have made life difficult for the labels. And many top artists signed to labels had contracts that didn't cover digital music. Most would likely want to renegotiate, especially since their lawyers had dealt with mysterious packaging and new-technology deductions in CD contracts for the past fifteen or twenty years. ”It was not what the perception is-it was not ignorance. It was not being caught and bit on the a.s.s by something that was coming. It wasn't any sort of arrogance of maintaining the old way and preventing new things from happening,” says Al Smith, a Sony Music VP who became legendary to tech executives as a champion stonewaller. ”It's that the whole nature of the copyright business creates issues that are impossible to overcome.”

Difficult? Yes. But impossible? When CDs took off in the early 1980s, forever altering labels' contracts with artists, publishers, and retailers, executives had no problem forcing their clients into new deals. And, of course, labels would later jump into a new service with Apple Computer that overcame the very same hurdles Al Smith describes. But in the early 2000s, they simply failed to recognize that the new way of doing business was worth the effort. Had the labels made a deal with Napster, they would have found several immediate advantages: a built-in user base of 26.4 million people, as of February 2001, most of whom were loyal and pa.s.sionate about both music and the service itself; an efficient way of communicating with their customers, discerning their musical tastes, and aiming pitches for new alb.u.ms and singles; and the flexibility to set prices at a number of levels, with models ranging from pay-by-the-song to monthly subscriptions. ”You can't compete with free,” label executives complained at the time, but for many users, free free was not even the best part of the service. They used Napster to get music whenever they wanted, and could burn it to homemade CDs, play it on their computers, or transfer it to devices like the Rio or, eventually, the iPod. Had the labels charged money for Napster use, a large number of freeloaders would have probably dropped out of the service. But a number would have gladly paid for the privilege, as the huge numbers of iTunes Music Store customers proved a few years later. Yes, it's entirely possible that had the labels licensed Napster, pirate-dominated services like Kazaa and LimeWire would have popped up anyhow and undercut an official Napster store. But the Kazaa and LimeWire services were cluttered with spyware and confusing ads, and were never as clean or easy to use as the original version of Napster. was not even the best part of the service. They used Napster to get music whenever they wanted, and could burn it to homemade CDs, play it on their computers, or transfer it to devices like the Rio or, eventually, the iPod. Had the labels charged money for Napster use, a large number of freeloaders would have probably dropped out of the service. But a number would have gladly paid for the privilege, as the huge numbers of iTunes Music Store customers proved a few years later. Yes, it's entirely possible that had the labels licensed Napster, pirate-dominated services like Kazaa and LimeWire would have popped up anyhow and undercut an official Napster store. But the Kazaa and LimeWire services were cluttered with spyware and confusing ads, and were never as clean or easy to use as the original version of Napster.

Any commonsense calculation proves the point. Let's say record labels had jumped in when Napster's user base was at 26.4 million per month. Let's say, conservatively speaking, half don't want to pay and go to Kazaa or LimeWire or some other free service, leaving 13.2 million users. Let's say each uses the official Napster to buy 10 songs for $1 apiece every month. That's record business revenue of $132 million per month, or $15.84 billion a year. Sure, labels would have had to pay artist and publisher royalties out of that, but the overhead of trucks, warehouses, crates, and record stores suddenly gets cut dramatically. And remaining CDs suddenly get a powerful, internet-based marketing and promotional tool. In hindsight, after years of plummeting CD sales and industrywide layoffs and artist-roster cuts, it's clear that making Napster official circa 2001 would have been a huge positive for the record business.

In fairness to the labels, the people who ran Napster weren't exactly open-minded, either. They were rebels by nature. Although Shawn Fanning was an amiable character who would later jump into the digital-music business with major labels via his new company, Snocap, in 1999 and 2000 he wasn't in the position to make Napster deals. He left that function to people like his uncle John, who, as Eileen Richardson recalls, was p.r.o.ne to proclamations like: ”We will take down the music industry! And give away free stuff!” Richardson herself was slow and combative in dealing with the RIAA's Frank Creighton and Hilary Rosen. And just as behind-the-scenes negotiations were heating up with the major labels in July 2000, John Hummer appeared in a Fortune Fortune article headlined ”Big Man Against Big Music,” declaring, ”I am the record companies' worst nightmare.” This countercultural bl.u.s.ter was fine for a pirate organization aiming for public attention and users, but it alienated potentially receptive music business partners like Bronfman and Idei. And it pushed less receptive partners even further into fight mode. article headlined ”Big Man Against Big Music,” declaring, ”I am the record companies' worst nightmare.” This countercultural bl.u.s.ter was fine for a pirate organization aiming for public attention and users, but it alienated potentially receptive music business partners like Bronfman and Idei. And it pushed less receptive partners even further into fight mode.

Because of this stubbornness-on both sides-the labels had come to the defining fork in the road, and they picked the wrong path. ”I feel very strongly about that moment in time, and the labels clearly blew it,” says Jeff Kwatinetz, chief executive officer of the Firm, a Los Angeles management company that represents hard-rock bands like Korn and Linkin Park as well as pop star Mandy Moore and rapper Ice Cube. ”Something like thirty million-plus music fans were in one spot online. At the time, the idea of all the music you would want for $15 a month was an appealing thing and studies showed most users would've paid it. On top of that, if the site was marketed, in addition to the viral buzz, it goes to fifty to sixty to seventy million users. It's in the billions and billions of dollars that [labels] left on the table by suing Napster. Not to mention the possible advertising dollars that could have been generated.

”Clearly there was a deal to be done, but instead it became the moment that the record labels killed themselves,” he continues. ”Stealing music became more convenient, and the Napster audience was fragmented all over the internet.”

During the Napster era, Hilary Rosen of the RIAA appeared in almost every news story as the anti-Napster, antipiracy spokesperson for the record industry. Aside from Metallica, the flame-haired, tough-talking Rosen was the lightning-rod face of the Napster opposition. Wired Wired t.i.tled a 2003 profile ”Hating Hilary.” It described a file-sharing debate at Oxford University at which Rosen represented the music industry's side of the issue-and had to contend with boos and hisses every time she spoke. Daughter of the first woman ever elected to the town council in West Orange, New Jersey, and an insurance broker, Rosen started her career as a bartender-turned-lobbyist in Was.h.i.+ngton, DC. Her mother provided a connection with thenNew Jersey governor Brendan Byrne, and Rosen found herself lobbying for music publishers. She became simultaneously loved and feared. ”She can punch you in the face, and you're still smiling after she does it,” John Podesta, chief of staff for the Clinton administration, said in the t.i.tled a 2003 profile ”Hating Hilary.” It described a file-sharing debate at Oxford University at which Rosen represented the music industry's side of the issue-and had to contend with boos and hisses every time she spoke. Daughter of the first woman ever elected to the town council in West Orange, New Jersey, and an insurance broker, Rosen started her career as a bartender-turned-lobbyist in Was.h.i.+ngton, DC. Her mother provided a connection with thenNew Jersey governor Brendan Byrne, and Rosen found herself lobbying for music publishers. She became simultaneously loved and feared. ”She can punch you in the face, and you're still smiling after she does it,” John Podesta, chief of staff for the Clinton administration, said in the Wired Wired piece. piece.

Rosen was publicly infamous among Napster supporters for absolutely refusing to budge from her file-sharing-equals-theft position. In private, however, she argued strenuously for a deal. ”Hilary, just stop it,” Doug Morris told Rosen at the time. ”We have something internally that will solve it all.” He was referring to Pressplay, a clunky, poorly reviewed online music store created by Sony and Universal that cost $14.95 a month for a limit of fifty songs. The other ”official” service, MusicNet, was planning to use content from EMI, Warner, and BMG, but it never got off the ground despite intense, hard-sell content-licensing meetings between its parent company, RealNetworks, and label executives such as Al Smith of Sony Music. ”I think Al Smith enjoyed our meetings because he liked the back and forth,” says then-Real executive Alan Citron, who tried everything to get majors to jump aboard. ”But it never felt productive. We were going through the motions and had little chance of anything happening.”

Today, Rosen, now the political director for the Huffington Post and a familiar Democratic face on CNN, finds the labels' Napster-era foot dragging a tragedy. (Some of her critics left over from the Napster period call Rosen's public flip-flopping disingenuous, wondering how she can square her more liberal new position on file sharing with her unyielding conservatism at the time.) ”I say this with the most affection possible-[label executives] had all the wrong reactions. I thought this was a revolution and we should ride the wave,” she says. ”But they just did not see a business model that was anything but cannibalizing in the worst sense. They needed to jump off a cliff, and they just couldn't.”

THE J JULY 2000 2000 Sun Valley meeting did have one positive result: It introduced Thomas Middelhoff to Napster. Sun Valley meeting did have one positive result: It introduced Thomas Middelhoff to Napster.

With his small spectacles, slicked-back hair, striped ties, impeccable suits, and imposing height, Middelhoff looked the part of the successful German businessman. His career began at his family's textile firm, but he joined Bertelsmann as a management a.s.sistant in 1986. At the time, Bertelsmann was under the control of Reinhard Mohn, great-grandson of Carl Bertelsmann, who founded the company as a publisher of religious books in 1835. Mohn was conservative and careful, but he spent the 1960s and 1970s expanding the company, buying Bantam Books and Clive Davis's Arista Records.

Middelhoff rose quickly at Mohn's company, turning around a Berlin printing plant, then managing one of the company's primary factories in Gutersloh. He had a particular affection for new technology-he'd written his PhD thesis in 1983 on a German online service in the early days of CompuServe and Prodigy. As head of strategic planning and multimedia, he spent the 1990s plunging into the internet. One day, a young American internet entrepreneur, Steve Case, contacted him and asked for a meeting; Middelhoff went in thinking he'd disperse some words of media magnate wisdom for a while and leave. Instead, he was blown away by Case's new model and international business plan. He lobbied his bosses to put $100 million into Case's company, America Online. Bertelsmann's top executives thought Middelhoff was crazy, but authorized a $50 million investment nonetheless. In 2000, Bertelsmann sold a stake in AOL Europe for $8.5 billion. This turned Middelhoff into a sort of internet-age business hero-and gave him plenty of Bertelsmann investment money to play with.

Middelhoff may have worked for a conservative company, but he couldn't have been more radical when he first encountered John Hummer and Hank Barry at Sun Valley in 2000. He was impressed with Shawn Fanning's service. He immediately had visions of a peer-to-peer network in which customers would pay $4.95 a month and get unlimited content over the internet-a John Grisham novel (published by Bertelsmann's Random House) here, an Elvis Presley alb.u.m (owned by Bertelsmann's RCA Music) there. Middelhoff excitedly returned to Germany and authorized his head of e-commerce, Andreas Schmidt, to look into partnering with the company. Like Middelhoff, Schmidt was obsessed with investing in the new economy, but Schmidt took it to an extreme. ”He was a charming guy,” says Gerry Kearby, who ran Liquid Audio and spe

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