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with. Overall, it was definitely the right choice for the company. We wouldn’t be here if Bertelsmann had not decided to fund the company and supported us.”

BERTELSMANN ANNOUNCED ITS INVESTMENT in the ballroom of the Essex House hotel in Manhattan. The press conference was long on attendees and remarkably short on details. The company said that the Napster system would continue as it was, that BMG wouldn’t drop its suit for the time being, and that a new business model hadn’t been worked out. The principals seemed only to agree that the new Napster would charge for membership, and Barry mentioned $4.95 a month as a hypothetical. The executives were coached not to say that Napster was running out of money. And if they were asked whether the loan would facilitate more illegal downloading, they were told to say neither yes nor no, just to parrot a line about the loan being used to develop a legitimate system. The companies revealed none of the investment terms.

As it turned out, Middelhoff had misjudged how the rest of the industry would react. Rather than racing to sign up, competing record labels were aghast, since the deal gave Napster the financial means to keep fighting them. At Bertelsmann, Zelnick and Dornemann resigned within a week—Middelhoff later said they were fired, since BMG was doing so poorly—and Conroy left two months later for AOL.

Middelhoff and Schmidt were supposed to travel to Redwood City to meet the Napster staff after the announcement, but only Schmidt made it. Middelhoff sent an e-mail instead, which Barry told everyone to keep out of the press. “You have all done an incredible amount of work in the face of significant challenges and limited resources,” Middelhoff wrote. “Shawn has done an amazing thing in inventing this technology, but I know that bringing the company this far has required the talents and dedication of all of you. . . . Shawn is right when he says, ‘We will always have the user’s best interest in mind.’ At the end of the day, Napster does not matter without its users.”

Barry and Middelhoff still believed that the labels would follow them in the deal, but they were soon disappointed. Unlike Bronfman’s plan from earlier in the year, Bertelsmann didn’t yet have the equity to divide

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