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all the rave

 all the rave

The Rise and Fall of

Shawn Fanning's
Napster

JOSEPH MENN

CROWN
BUSINESS
 Copyright © 2003 by Joseph Menn

All rights reserved. No part of this book may be reproduced or transmitted in

any form or by any means, electronic or mechanical, including photocopying,
recording, or by any information storage and retrieval system, without
permission in writing from the publisher.

Published by Crown Business, New York, New York.

Member of the Crovm Publishing Group, a division of Random House, Inc.
www.randomhouse.com

CROWN BUSINESS is a trademark and the Rising Sun colophon is a registered

trademark of Random House, Inc.

Printed in the United States of America

DESIGN BY BARBARA STURMAN

The version of Napster's logo on the cover was modified for the company by
artist Tom Dolan from the more widely distributed original by Sam Hanks.

Library of Congress Cataloging-in-Publication Data

Menn, Joseph.
All the rave: the rise and fall of Shawn Tanning's Napster /
Joseph Menn.
Includes bibliographical references and index.

1. Napster Inc. 2. Music trade. 3. Fanning, Shawn. I. Title.

ML3790 .M43 2003
025.0678-dc21 20020142

ISBN 0-609-61093-7

10 987654321
First Edition
FOR SAMANTHA, MY LOVELY WIFE
Observe my uncle. If his occulted guilt

Do not itself unkennel in one speech,

It is a damned ghost that we have seen,
And my imaginations are as foul
As Vulcan's stithy Give him heedful note,

For I mine eyes will rivet to his face,

And after we will both our judgments join

In censure of his seeming.

—Hamlet
 Contents

Author's Note 1

Prologue: A Party out of Control 5

1 the rebels 13

2 a big idea 29

3 birth of a business 41

4 getting money 57

5 going west 85

6 fame 119

7 the industry 147

8 competition 169

9 venture games 191

10 hummer winblad 223

11 bertelsmann 261

12 the coup 289

Epilogue: After the Revolution 309

Notes 325

Bibliography 341

Index 343

( ix)
all the rave
 Author's Note

I WAS NOT ONE OF THE THRONG OF JOURNALISTS WHO

wrote dozens of stories about Napster during its peak from late 1999
through mid-2001. Like many, I figured that the exhaustive newspaper

and magazine coverage was plenty. It was only in late 2000 that I met
some of the talented people who worked at the company and realized

how wrong I had been. Not long after, I came to the conclusion that

Napster's real story could be told only in an investigative book, for three

reasons.

First, for all of the surface coverage in the media, an astonishing

amount of information was never made public. Most important, there

was the unseen role of the man who incorporated Napster and essentially

controlled it through its crucial first year, before the professionals took
over. That man is not the enigmatic Shawn Fanning, the Time and

Fortune magazine cover boy and the world's best-known hacker, whose
message of free music eventually attracted as many as 70 million regis-

tered users. That man is Shawn's uncle John Fanning, who kept 70 percent

of Napster's stock at its inception. John Fanning was a struggling but

ambitious businessman with bad debts, a habit of mixing personal and
company matters, and a confrontational style that brought him multiple
lawsuits and a police record. By design, Shawn Fanning was pushed for-

ward as the young spokesman for a computer-powered movement. But

his uncle best represents what Napster became. And John Fanning was

( 1 )
just the beginning. Other key employees brought in under his leadership

were also well familiar with angry investors, the courts, and the cops long
before Napster's landmark fight with the record industry. Their roles too

have never been examined. All told, the undisclosed chaos, betrayal, and
dissension within Napster made the record-industry lawsuit look like a

friendly game of chess. And it is somehow fitting that the rapid develop-
ment of this weapon for allowing consumers to take control away from
the entertainment-industry giants also illustrates so dramatically the

power that a few individual entrepreneurs can wield in a post-Internet

society, for good or for ill.

The second reason that Napster merits book-length treatment is how

different it was from all the other excesses of the Internet bubble. Napster

wasn't selling pet food or baby products online. The fastest-growing busi-
ness of all time, Napster had an innovative technology, true to the Net's

roots, that fired up not only the computers of the music-craving masses
but also the imaginations of CEOs at some of the biggest companies on
the planet. And driven by leaders who kept doubling Napster's bet, it

pushed the edge until it defined where the lines would be drawn on some
of the most important political and economic issues of the day, including
digital piracy, consumer rights, freedom of speech, and the fiiture shape of
the Net itself As I write, the leaders of Hollywood and Silicon Valley,
two of the most powerfiil industries anywhere, are jousting on Capitol
Hill over whether widespread anticopying mechanisms will be mandated
in the computers of the fiature. All that from the mind of an idealistic

seventeen-year-old from Cape Cod who got some very bad advice.
The third reason nearly contradicts the second. While Napster was
different, it also epitomized what went wrong at the hottest spot in capi-

talism in the historic boom at the turn of the century. It was exactly like

everything else that was happening, only much, much more so. In Nap-
ster's case, billionaire venture capitalists were willing to put millions of
dollars behind something that was not just fooHsh, as so many start-ups
were, but something that they had already concluded was illegal If the
investment philosophy that powered Napster was badly overcharged, so
were the characters that led it. But they too were archetypes of a
remarkable era. A httle rougher around the edges and a Uttle more reck-
less, to be sure, but the sort of people who seemed almost genetically

( 2 ) JOSEPH MENN
designed to take advantage of the mass mania that surrounded them.
Read correctly, the story of Napster proves that the influx of investment
money credited with spreading technology faster and wider than ever

before also corrupted the evolution of that technology, provoking a bru-

tal backlash.

This book is based on hundreds of interviews with virtually everyone

who was important at Napster and many of the people they came in
contact with, from their childhood years through Napster's dealings with
media titan Bertelsmann AG and the company's bankruptcy. (Bertels-

mann also owns the publisher of this book.) My dealings with John
Fanning were more limited. They included authorized interviews with his
company's lawyer and publicist, his hanging up the phone and shutting a
door in my face, and his response to an e-mailed list of questions, an
answer that consisted chiefly of his claim that the questions alone were
grounds for a lawsuit.
My work is supported by police and court records from the states of
California, Massachusetts, Delaware, Pennsylvania, and Washington. I

also have relied on scores of confidential internal company documents,

nonpublic depositions and other material from the legal battles, and
thousands of e-mails from within Napster, the recording industry's trade
group, and elsewhere. To avoid a mind-numbing excess of endnotes, you
can assume that unless I say otherwise, when I refer to such a document,
I have read it. Likewise, oral statements in quotes are from author inter-
views unless the endnotes say diflerently. Reconstructed speeches that are
not from a court transcript or tape and that I did not personally hear are
usually from the recollection of the speaker. There are some instances

when a listener is the source. Whenever possible, these recollections have

been confirmed by the other parties, and any conflicts have been resolved
by the elimination of the material or by noting the discrepancy.
Because nearly all my reporting required substantial help from others,
I owe almost everyone named in it a debt of gratitude. I would especially

like to thank those who spent many days with me, some of them painfiil,

to make sure I had the facts right, knowing that they themselves would
not emerge unscathed. For exceptional bravery, I commend Napster's first

Silicon Valley CEO, Eileen Richardson, founding developer Jordan Rit-

ter, and cofounder Sean Parker, among others. Of the many good people

all the rave ( 3 )

still working for Napster when they spoke, I want to especially thank
Shawn Fanning and Ricki Seidman, who prevailed on employees to meet
me. My own employer, the Los Angeles Times, showed remarkable forbear-
ance in giving me six weeks' leave at a time when not one but two of the
Fortune 100 companies I cover were embroiled in public trials. I want to

thank editor John Carroll, managing editor Dean Baquet, business editor
Bill Sing, and senior technology editor Russ Stanton, who helped me in

more ways than I can say. Thanks also to digital-music writer Jon Healey
and the talented colleagues who And I am gratefiil to the
filled in for me.
readers of my early drafts, Anthony Effinger, Mark Saylor, and Samantha

Zee; my editor, Doug Pepper, and others at Crown; my agent and friend
Elizabeth Kaplan, who strides from mountaintop to mountaintop; jour-
nalist Dan Goodin, who raised the first questions about John Fanning;
Celia Francis, for crucial introductions; and the queen of hospitality dur-

ing my stay in Boston, Rachel Layne.

( 4 ) JOSEPH MENN
 Prologue :

A Party out of Control

NAPSTER FOUNDER SHAWN FANNING WAS FEELING GOOD. IN

the limo on the way to a massive Halloween rave in Oakland, California,
the eighteen-year-old had swallowed a tab of Ecstasy, and now it was
weaving a pleasant cocoon around him. Inside the warehouse, the dancers
swirled to the techno beat. Well-built and stocky from lifting weights,

Shawn kept drinking water and trying not to grind his teeth. Normally

shy, he was beaming at perfect strangers. Drugs aside, there was no reason
not to: Shawn was surrounded by things that he loved. Good friends,

youth culture at its antiestablishment best, and the music that was his

passion. And it was for the right cause — his cause. Napster was a cospon-
sor of the festivities, and the new company's banner and stickers were on
display. In the haze of that evening in October 1999, it didn't seem to

matter that most of the other people there had never heard of his brain-
child. It didn't matter that Napster's booth was slipshod and the last to go
up. And it didn't matter that Napster's new chief executive was on Ecstasy
too. That was sort of nice. "It was stupid. But it was a lot of fun," Shawn
said later.

What did matter was that Shawn was a long way from his rough
Massachusetts childhood —some of it spent on welfare, part of it spent in
a foster home —and that he would never again face days like that. He was
riding the Internet explosion that had transformed his new home, the
San Francisco Bay area, into a pulsating mass of parties, easy money, and

( 5)
unlimited opportunities for hackers and hucksters alike. After months

of demonstrating and explaining Napster to rich strangers, Shawn and

his team had won funding for his fledgling company, now with about

ten employees, some of them Silicon Valley pros. And the number of
Napster's users was snowballing by as much as 50 percent in a single day.

If that kept up, Napster would become the fastest-growing business in

history.

It had been a blur to Shawn. Two years before, he was just one of a
hundred seniors at Harwich High School on Cape Cod, where he was
well liked but best known for the purple BMW Z3 that his uncle gave

him. After Shawn learned to program computers and started tinkering

with ways to find digital music files faster, Napster had sprung to life and
spread rapidly by word of mouth well before Shawn could get all the bugs

out. Shawn had moved to California the previous month at the insistence

of Napster's first outside investor. In a whirlwind of cash wire transfers

and quick decisions, he brought along Napster's nineteen-year-old

cofounder, Sean Parker, now just as dazed as Shawn by everything that
was happening around them. Driving one day in a car that an older

employee had rented for them, Shawn had looked over at Parker. "What
are we doing in California?" he asked.
The rave was a major break from their hectic routine, and the two
teenagers would remember it as one of the high points of their breakneck
adventure. Sponsoring it was a characteristically Parker idea. A hyperen-
ergetic and business-oriented programmer from Herndon, Virginia, the
severely asthmatic Parker had met Shawn on a chat channel for aspiring
hackers while both were in high school. "He was one of the few people
that would talk to me about stuff that wasn't technical —the meaning of
life, consciousness," Parker said. Later, Parker was one of the first Shawn
told about Napster. Parker used every business connection he had to get
the project funded. It was an insane process, filled with double crosses
and a sort of high-speed poker with investors, but Parker set the events in
motion that finally brought the company its first, magical quarter-miUion
dollars. Now most of Parker's time was spent strategizing, predicting
what Napster needed to do next to keep growing and taking in money
from investors. But while Shawn was busy writing code, Parker was more
interested in making time for fun, and he was a longtime fan of electronic

( 6 ) JOSEPH MENN
dance music. The Oakland party gave him something to be excited about

that didn't turn him into a wheezing ball of stress.

There were thousands of kids inside the warehouse, and Parker had
an all-access pass that came with Napster's sponsorship. The best part
came when Parker stuck his head out a side door, where a hundred or
more kids were clamoring to get past the guards, many claiming they
knew someone inside. "They were all screaming. It was like slaves baking
in the hot sun, all wanting water," he said. Scanning the crowd, Parker
recognized the old school friend he had invited down from California
State University, Chico, now a committed raver with his own friends

in tow. Like a reigning rock star at an exclusive club, Parker let his aco-

lytes in.

The third member of the original Napster troupe was in his element

as well. Sporting spiky, dyed-blond hair and a pierced tongue, Jordan

Ritter was older than Shawn and Parker, at the advanced age of twenty-
one. Unlike them, Ritter had given up a real job and a real life to join

Napster out West. Ritter had been a computer-security researcher in

Boston, a dream assignment for a hacker who spent long nights breaking
into networks just to see if he could do it. Coming from a trailer home in
Florida, Ritter made it most of the way through to a computer-science

degree at Lehigh University in Pennsylvania before joining online groups

of hackers that straddled the line between taking advantage of security
loopholes and issuing public warnings about them. It was in one of those
groups, called wOOwOO and pronounced "woo woo," that he met Shawn.
Shawn turned to that collective of young hackers, academics, and
security pros for help in writing and improving the Napster program.
Several wOOwOO members served as testers, and Ritter took an especially
active role. He kept pestering Shawn with questions about the workings
of the server side of the system, the back end that connected one personal
computer and its available songs to others. Eventually Shawn turned the
server over to Ritter, who used his greater expertise to redesign it, allow-
ing Napster to handle the traffic that surged when word leaked out and
Napster started taking off. The first time they met in person was when
Shawn stopped by Ritter's bachelor pad overlooking Boston's Christian
Science Center headquarters and asked him to move to California. Ritter

hesitated, reluctant to leave Boston and his job at BindView Corp. After

all the rave ( 7 )

weeks of negotiations, he took the plunge. On this night at the rave, he

was glad he had. Improving Napster's design so elegantly that it could

withstand tens of thousands of users without requiring more computer
hardware than NASA was the challenge of his career. All three of them
might get rich and famous. And in the meantime, he could hardly object
to the rave.

Sean Parker had managed to convince Napster CEO Eileen Richard-

son that a sure way to get the attention of the company's natural con-
stituency of young music fans was to blow $7,000 on a rave. Looking Hke
a club diva herself, with a streak of magenta dyeing her wavy brown hair,

Richardson loved a good party and loud music, and she was surprisingly
easy to persuade. She wanted the Napster kids to have flm. And it made a

certain amount of sense to market the brand at a rave. To Richardson, the

best thing about Napster was that music fans could discover songs that

they couldn't find in stores, and electronica was particularly hard to come
by. "A rave is perfect," Richardson thought. "The kids there love this

music, and it's impossible to get." Now she was beside Parker in the
booth, her pupils dilated. Adorned with temporary tattoos in the spirit of

the evening, they shouted at the sweat-soaked kids wandering by that

Napster was giving away Rio portable MPS players: Just put down your
e-mail address to get in the drawing.
Richardson was thirty-eight, the grown-up in the outfit. But she was
the sort of elder a teenager might pick for himself: "a den mother," said

Parker. As a rising venture capitalist in Boston, Richardson led an invest-

ment in a company called Firefly, a service that recommends music based
on user taste. Now living in the heart of Silicon Valley, Richardson heard
about Napster from the company's first benefactor, investor Joseph "Yosi"
Amram. "Oh my God," she said as she played with the service at home
for the first time. If Firefly was an on-ramp to new tunes, Napster was the
Autobahn. She agreed to join for six months as interim chief executive,

working the line between Shawn and his young collaborators and the
world of big-time SiHcon Valley wheeler-dealers, the billionaires who had
bankrolled Netscape and Yahoo!, Amazon and eBay.
Richardson loved her job. Instead of just investing in companies and
coaching them from a distance, she was building a firm herself For once,
her teenage son understood what she did for a living. The kids at the

( 8 ) JOSEPH MENN
company were inspired. And Richardson believed she could turn their
invention into something the record industry would love — a way to mar-
ket new music to potential fans, based on what they liked, for virtually

nothing.
As the good feehng built up under the canopy behind Napster's
booth, it was easy to forget that like the rave scene itself, the Napster

movement was based on the unstable allure of illegal behavior. And it was
easy for Shawn to forget what bothered him more than that: his blowhard
uncle John. John Fanning had served as a surrogate father during much of
Shawn's difficult childhood. He had hired Shawn to work at the online-

games firm he ran in Hull, Massachusetts, and Fanning had even bought
Shawn his first computer and that sports car in high school. But their

relationship was far from perfect. A dropout from Boston College, the
thirty-five-year-old Fanning fancied himself a successful businessman,
destined to make the cover of Fortune magazine. His track record sug-

gested that was unlikely, and the games firm was struggling when Shawn
told his uncle about Napster. Fanning realized it could be huge and
moved quickly to incorporate Napster Inc. with the Massachusetts secre-

tary of state. And he took one more step, laying a minefield that would
dictate every major direction that Napster would take in the crucial next
year: Fanning awarded himself 70 percent of the company, leaving just 30
percent for his nephew. Shawn was stunned, but Fanning said that no one

was going to fund a company majority-owned by an eighteen-year-old.

He said that Shawn needed his business contacts and savvy. Since Fan-
ning had taken care of Shawn before, the young man signed the papers.
Fanning's grab did far more than injure his nephew. It changed the
balance of power at Napster to one favoring a completely different set of
motivations. And it didn't take long before that shift started shaping

Napster's destiny. Fanning's chief virtue, he told Shawn, was his business

credibility and fund-raising power. Yet the majority of the potential

investors looked at the technology and applauded, looked at Shawn and
Parker and approved, and then looked at John Fanning and blanched.
One near-investor explained that he thought he could handle what he
predicted would be a serious legal issue, or handle a semi-involved uncle

with too much ego and too much equity—but not both. After months of
effort by Parker and Fanning, Silicon Valley investor Amram agreed to

all the rave ( 9 )

put in $250,000 for a sizable stake. Since Amram had been burned
investing in the games company, he set three conditions: The company
would move to northern California, where he could keep an eye on it.

Fanning wouldn't be CEO—Amram would pick one instead. And there

would be a three-person board: Fanning, Amram, and the new CEO. For
the top job, Amram named Richardson, an old friend who had never met

Fanning and had no idea what she was getting into.

At the time of the rave, John Fanning was thousands of miles away.
Officially, he wasn't in charge, and he wisely kept himself out of the
media circus that would surround Napster. But soon he would start med-
dling in every significant decision the company made. It was John Fan-
ning, still the biggest shareholder, who decided that legal victory was a
virtual certainty and that the company didn't need to negotiate with the
record industry. It was John Fanning who vetoed venture-capital deals
that might have transformed Napster into a legally sound business. And
it was John Fanning, more than anyone else, who profited from Napster's
meteoric but unsustainable rise. He kept a significant chunk of Amram's
initial investment for claimed expenses back East, and he sold hundreds
of thousands of dollars worth of his shares as more investors poured in.

Soon after the rave, power struggles would erupt as users of the Nap-
ster service soared into the tens of millions and made it the best-known
brand on the Internet. Shawn would emerge as a household name and a
generational icon, gracing the cover of Time magazine and testifying
before Congress. He would also be crushed by court rulings that closed
the door on the biggest theft of intellectual property in history. Much of
Napster's wild trajectory can be traced to that early division of power,

between a young hacker who wanted to see if he could solve an interest-

ing problem and an uncle who recklessly aspired to riches. Yet the two
depended on each other, personifications of the twin forces behind the
dot-com explosion. For before even such a brilliant innovation could rise

so far so quickly, it needed a hustler who could capitalize on the era's

investor greed and naivete.

Two years down member of the core team at the rave

the road, every
had departed Napster but Shawn, who quit briefly himself in a dramatic
final showdown over the company's survival. He returned to help reshape

Napster into a legal distributor of authorized music, only to see the com-

( 10 ) JOSEPH MENN
pany slide into bankruptcy. Yet the legacy of Napster's original technology
is hard to overstate. The firm's pirate successors now combine for a bigger

reach than Napster had at its peak. The record industry suffers from both
declining sales and judicial scrutiny of whether its members conspired
to suppress online distribution. Movie companies and others fear with

good reason that they wiU be the next to be "Napsterized." And aU man-
ner of academics, start-ups, and giant firms are embracing what's known
as peer-to-peer file sharing, hailed by Netscape Communications Corp.
founder Marc Andreessen as a "once-in-a-generation idea."

For Shawn and his friends, it would be an incredible trip. But it cer-

tainly wouldn't be an easy one.

all the rave ( 11

 the rebels

THE RAVE IN OAKLAND CAPTURED NAPSTER AS IT WAS 3UST

coming into its own at the center of the Web boom's insanity and on the
way to becoming the fastest-growing use of the Internet. The sometimes
painfiil story of the quiet young man at the heart of the company began at

another, far different party twenty years earlier, on the other side of the
country. It was in a ramshackle old house in the hard-luck town of Rock-
land, Massachusetts, south of Boston. The sprawling home was barely big

enough to contain the eight brothers and sisters of the Fanning brood, a
diverse and struggling Irish family that this night invited half the neigh-

borhood over to celebrate Eddie Fanning's high school graduation. The

Fannings loved music and a raucous good time, and they had arranged for
a band of local renown to play. MacBeth performed songs by better-

known Boston rockers Aerosmith and sang its own material, even record-

ing a 45 single. Coleen Fanning, sixteen, was especially impressed with

( 13 )
the band and with eighteen-year-old Attleboro guitarist Joe Rando in

particular. Hundreds of friends and neighbors showed up to enjoy the

night. The next sibling after Coleen in the family, fourteen-year-old John

Fanning, passed a hat and collected thousands of doUars to pay for the
bash, his first entrepreneurial experience.

The band became part of the Fannings' social circle, and in time

Coleen began dating Rando, who was smart, good-looking, and from a

wealthier family. A couple of years later, after Coleen told Rando that she
was pregnant, their romance ended. She kept the baby, and the young
Shawn Fanning joined the already-overstuffed household in 1980, before

it moved to nearby Brockton.

The first few years "were heU," according to Coleen, a small, freckled,

blue-eyed woman who laughs a lot and speaks with a pronounced Boston
accent. She moved from one tough area to another, then married an ex-
Marine and truck driver named Raymond Verrier.The couple had four
more children, and it wasn't the happiest of homes. "Money was always a
pretty big issue," Shawn said. "There was a lot of tension around that."

They lived near Brockton's projects for a time, and Coleen could see

her already-shy son withdrawing from what he saw happening around

him. "He went inside himself real deep and said, 'I want to get out of

this.' Even though it meant losing him a little bit, it's what I wanted for

him," said Coleen, who was working then as a nurse's aide. During a split
between the Verriers, when Shawn was about twelve, he and his siblings
had to move for several months into a foster home until the couple recon-
ciled. Always a strong student, Shawn tried to escape by concentrating on
school and by playing guitar, basketball, and baseball. When the family
was through the worst of the hardship, the Verriers moved to the small

middle-class town of Harwich Port, on the elbow of Cape Cod. The new
house was nice enough, if still crowded, and the neighborhood was full of
pine trees and songbirds.
As Shawn kept playing sports, his mother encouraged him, thinking
the whole time about scholarships to coUege. Shawn was especially strong

at baseball, even though fear gripped him at each trip to the plate. He
batted over .650 one year at Harwich High School, a small school with
some very good teachers. As Shawn grew, Coleen wanted to give him
more than she had had, more than she could give him directly. "We don't

( 14 ) JOSEPH MENN
have much," she said. "He didn't get a lot of things that people get who
come from money."
She saw that Shawn was motivated, and she turned to the person she

knew best who could be a mentor of sorts, her business-minded brother

John. John Fanning gave Shawn money for each A he brought home, and
there were many. And he bought Shawn his first computer, an Apple
Macintosh the Verriers could never have afforded. Shawn took to it

immediately. Often he would be on the machine doing homework or

chatting over the Internet through the evening. Every hour he typed,

the radio blared. "I always knew from an early age he was going to

accomplish things," Coleen said. Given her son's way of working, "it

doesn't strike me as strange he would figure out a way to have music on

computers."
John Fanning bought other presents for his nephew too. Nothing was
more important than the car — a dark purple BMW Z3 that ensured

Shawn made an impression at Harwich High. "He was a nice kid. Every-

body liked him," said Tim Jamoulis, who played on the tennis team with
Shawn. History teacher Richard Besciak taught Shawn in homeroom for

all four years and remembered Shawn's unusual ability to focus intently

on the task at hand. "A lot of kids can tune out, but he was right on
track," Besciak said. "He was an A student without trying. He was a nice,
generous, levelheaded young man." Harwich High had only about a hun-
dred students in each grade, but around Shawn's time, there were several
promising computer students. After Shawn became one of them, every-
thing else fell by the wayside. "Once I started getting into programming,

I pretty much quit all sports," Shawn said. A fellow hacker at the school

said that Shawn's work on the machines "really seemed to consume him.
There were those who were doing it just as a hobby, for games, or to

cheat in school. Shawn went through that phase, but it was just a starting

point. He was quickly beyond that, doing much more sophisticated

things."

When Shawn was seventeen, John Fanning located Joe Rando on the
Internet and asked his sister Coleen if she wanted Shawn to meet his bio-

logical father, who still Uved in the area. Coleen had no hard feelings

about Rando and had told Shawn the truth when he was seven, so she
agreed immediately. "I knew Shawn had to get to know him. He was at

all the rave (15)

the right age, and I knew it could only be good," Coleen said. "I know
Shawn gets a lot of his good qualities from me," she said, laughing at her-

self "But he gets a lot from the other side too." Still, when she first saw
the two of them together, she couldn't get out of the car, she was so
shocked. It was just that they looked so much aHke, right down to the

lopingway they walked. Shawn and Rando hit it off, and they stayed in

touch during all the craziness that Shawn was about to go through.
Rando had done well for himself, earning a degree in physics and an

M.B.A. He worked in fiber optics and tried his hand at running small
software firms before settling in as a real-estate developer specializing in
shopping malls. Rando discovered that he preferred working for himself
to laboring at big companies or under the control of powerful investors.
An Internet skeptic, Rando gave his son one major piece of business
advice about Napster: to take the money as soon as he could. "I always

told him, 'If you can cash out, cash out,' because the valuations I was see-

ing were mind-boggling," Rando said.

For more day-to-day guidance, Coleen continued to steer Shawn

toward his uncle. Even though Coleen and John weren't close, John Fan-
ning had ambition that she wanted Shawn to experience up close. "He's

like Shawn in a different way," she said. "He wanted out of that situation
he started in. It was the motivation to succeed that I wanted Shawn to
pick up on."
John Fanning lived an hour away in blue-collar Hull, a 350-year-old

fishing town halfway back to Boston from the Cape that was trying to
survive on the tourist trade without offering much in return. Shawn saw
his uncle's office, the home of his latest venture, Internet firm Chess.net,

as a refuge. He worked summers there, learning to program and often

sleeping on the couch. Fanning loved playing games, and he developed a

serious habit with a computer video game called StarCraft. His favorite

opponent was Shawn. Even when Shawn's hacking hobby started to look

like a serious business. Fanning wanted to play. More than once, when
Shawn's friends and collaborators needed him to work, he told them he
couldn't: His uncle wanted to keep playing StarCraft. If he didn't keep
playing with him, Shawn told them, Fanning wouldn't give him money
for dinner. Shawn's friends believed that Shawn wasn't kidding, and that

if his uncle was kidding, the humor was much darker than what they were

( 16 ) JOSEPH MENN
used to. "I'm sure if he hadn't played StarCraft, he would have gotten

fed," Napster cofounder Sean Parker said. "But John Fanning has a way
of being really stubborn."
Shawn shared his family's love of a good time. But where Fanning
could be boisterous, his nephew was inward-looking and serious. It was
while he was working at Fanning's company that Shawn expanded on his

early taste for computing. "I was just getting into programming, so I spent

a lot of my time just fiddling with projects and hanging out. I have a really

fond memory of that time, but I think I could have taken better advantage
of it in terms of learning," Shawn said. "Eventually I transitioned into

doing some programming for the Web back end. I built the Web store. I

was doing a lot of network programming and Unix programming and

stuff. I was around computer guys, so it gave me a chance to learn."

It was also then that Shawn discovered what would make him
famous: MP3 digital music files he found through Internet Relay Chat,
the hangout of choice for budding Internet programmers, hackers, and
wanna-bes. Invented in Finland in 1988, IRC is a form of mass instant-
messaging. In a channel, members type and send messages in real time to
anyone who is monitoring that channel, and they can switch to private
interactions. In the late 1990s, the IRC system spawned thousands of
channels on every topic conceivable. Some were devoted to MP3s, where
users traded music. Others focused on free software or pirated programs.

Some of the channels were closed, while others were open to anyone who
stumbled onto them.

It was on one of the open channels, devoted to minor hacker

exploits and other things geek, that Shawn first ran into Sean Parker in
1996. As Shawn learned more and worked himself up the IRC hacker

hierarchy, he got invited to join a private IRC channel called wOOwOO,

which would play a key role in Napster's development. WOOwOO was for

hackers and others interested in security issues who knew what they were

doing, having already cut their teeth elsewhere. It wasn't full of kids who
puUed off hacking attacks by running scripts of code they had down-
loaded elsewhere. But it also wasn't for the established old-school hack-
ers, who kept to themselves for fear of exposure. (The term hacker has two

all the rave (17)

meanings. One is generally positive, implying technical ability. The other

is negative, implying improper behavior. Many self-described hackers

prefer to call those who engage in wrongflil behavior as "crackers." But

since that term is little used outside of hacking circles, this book adopts
the word hacker in its broadest sense, without intending to give it moral

weight one way or the other.)

Like New York nightclubs, IRC channels would rise and fall quickly

in the esteem of others. Once too many people joined, the hip crowd

moved on and started something new. WOOwOO had been founded by a

baby-faced high-schooler from Utah named Matt Conover, an impressive

young hacker whose nickname in the channel was Shok. Shok had gained
some notoriety for releasing detailed "exploits" —code that could be used

for attacks —^which is something that's extremely controversial in the

computer world. Many big software companies say the practice is

destructive and should be criminahzed. Some security experts, however,

argue that the threat of the release of such code is the only thing that

forces companies to admit they have a problem and fix it. At present,

some groups are attempting to form a compromise standard, such as a

four- week warning before an exploit's release.

Shok's work is available on hacking sites today, including a "war-

dialer" that bombards Unix computer systems looking for open modem
Hues, a key hacker technique. Another is a program to fake an IP address,
a computer's location on the Internet. Shawn's nickname in the group was
Napster, which he had picked up on the basketball court for the short,
nappy hair he sported before shaving it off. Another mainstay was Dug-
song, who was in reality a University of Michigan student named Dug
Song. "The whole point of wOOwOO was to have an environment that was
open to all," Song said. "People could talk about the computer universe
from both sides. I'm a white hat.' I'd never actually done anything crimi-
nal. But there are definitely people interested in other things." He paused,
searching for the right phrase: "Applied uses of the technology."
WOOwOO drew from several other groups, including a black-hat outfit

based in France called ADM, an acronym for Association de Malfaiteurs,

or "association of evildoers." Another affiUate was el8.org, run by Evan
Brewer. The name was a play on "elite," slang for sophisticated hacking

experts. Brewer was a little darker than average on wOOwOO, and at one

( 18 ) JOSEPH MENN
point in a channel chat he defended the man who was facing prison for

writing and releasing the wildly destructive Melissa virus. "I don't see
what's so bad about writing viral code," Brewer wrote under his nickname
"dmessOr," short for "digital messiah." Shok gave a balanced rejoinder,

writing: "It's fine until I'm victimized."

Another member was Seth McGann, who was brought into wOOwOO
while a computer-science freshman at Worcester Polytechnic in Massa-
chusetts. Pale and shy, McGann was a stereotypical computer nerd from
Hamden, Connecticut. "I was a hard-core Unix geek," he said. McGann
had been playing around with vulnerabilities in instant-messaging sys-

tems, coming up with a way to make messages appear to have been sent
by someone else. After he posted some additional exploits, including
detailed instructions for cracking the Solaris operating system from Sun
Microsystems Inc. with a common technique called a buffer overflow,
McGann got an e-mail message from Brewer. Brewer praised his work,
but suggested that it might be better to keep it out of the public eye.
Toward the end of 1998, Brewer brought McGann into wOOwOO.
McGann wasn't much of a positive thinker, taking the nickname
"Minus." But he was in awe of some of the people in wOOwOO and
ADM. He also appreciated the collaborative culture. Unlike seasoned
engineers, who have solid grounding in theory and many different parts

of the computer world, hackers are often brilliant and knowledgeable

about one or two things, with huge gaps in the rest of their understand-
ing. An IRC group like wOOwOO allowed them to reach out for help
when trying to write code in an unfamiliar area. In structure, wOOwOO
was the polar opposite of profit-driven Silicon Valley, where equity was
all. It was a loose network of confederates who grouped together on proj-

ects, with leadership determined by charisma, the amount of work put in,

and the quality of the contributor's ideas.

For most, the unifying interest was computer security, or the lack of
it. Searching for open ports on computers was one of the key areas of the
trade. Not coincidentally, it would also be a crucial part of the Napster
service, which could attach itself to company systems in unfamiliar ways,

tunneling through corporate firewalls to allow bankers, brokers, and even

military personnel to use the program at work. "My main interest in com-
puters, what really sucked me into it, was some of the security stuff,"

all the rave (19)

Shawn said. "I never really had the desire to break into machines, but the

act of securing machines and understanding how at a lower level things

worked, for the purpose of making them more secure, was something I

was interested in. I kind of found people along the way that were both

talented programmers as well as interested in security."

In his later congressional testimony, Shawn said nothing of his own

hacking background —only that he was interested in programming and in
listening to music. When Napster was international news, every story
missed the fact that Shawn was an aspiring hacker who was at best a gray

hat. He wrote programs that took advantage of Unix computer network

flaws and bore such unambiguous titles as "faker.c Dalnet Address
spoofer," which allowed electronic correspondents to misrepresent their

computers' locations. "Napscan.c portscanner," likewise, was a tool for

checking computers for open lines to hack through. And "orgasm.

Portscanner/Flooder," cowritten by Shawn, was a program for denial-of-

service attacks, the type that has taken down Yahoo!, eBay, and the feder-
ally funded CERT institute for computer security, among other targets.
"That was just silly," Shawn said when asked about those early
programs. "This guy showed me this basic program to connect to a port

and send a little bit of data there, so basically I did everything you could

possibly do with those functions until I had really learned them inside

and out," he said. "None of that stuff" really did anything interesting at
all — it's just silly, really a test program. It was really just my version of

'Hello, world.'" It's true that Shawn wasn't big time, and it's unclear how
many hackers used the programs he put his nickname on. But they were
good enough to get him into wOOwOO.
WOOwOO members would go on to populate Napster, BindView
Corp., and several other well-known Internet security firms, and the ties

among the group prompted some to joke about an Internet mafia and
world domination. Before the dot-com boom pulled many of the collabo-

rators away to more profitable uses of their energy, though, it was less like

a mob than an unusually diverse social club. "Without wOOwOO, Shawn

and [Jordan] Ritter wouldn't have met, and Napster might not have taken
off," said group founder Conover, now a computer-security professional

in California. "We had completely different sorts of people."

Around the time that Shawn got involved at wOOwOO, he graduated

( 20 ) JOSEPH MENN
from high school. He badly wanted to go to Carnegie Mellon University,
the superior computer-science school that was home to CERT and the
alma mater of several of the young programmers at his uncle's Chess.net.

But Shawn didn't get in, and in the fall of 1998 he enrolled at Northeast-

ern University in Boston. The introductory computer courses were below

his level, so he partied, had a good time, and didn't learn much. It was far

more interesting to be in wOOwOO, meeting people like Dug Song and

Jordan Ritter.

RiTTER WAS BORN IN 1978 in Northridge, near Los Angeles, the only
child of a heavy-drinking mother and a drug-addicted father. Two years

later, as his parents divorced and his father disappeared, he moved with
his mother near Dallas. She ran a jewelry business and dated affluent men
in the hunting-and-horse-jumping set, including one she would marry.

Ritter played baseball and soon placed into advanced programs in school.

His natural father reappeared when Ritter was in elementary school and

would fade in and out as he moved around and battled various drug
habits. Ritter believes his father was a good man with problems who was
unusually vague about his past: He thinks his father worked for a secret

government agency in Vietnam. His father's brother, Donald Ritter,

found a more mainstream outlet for a similar drive, serving as a U.S. con-

gressman from Pennsylvania for fourteen years.

At twelve, Ritter moved to the first of a series of homes in Florida,

near where his father was living in a double-wide trailer and running a
gardening business. Ritter stayed in Florida through high school and
would visit his father every few weeks. One Christmas, perhaps angry
that her thirteen-year-old son had chosen that day to visit his father, Rit-

ter's mother called and drunkenly told him not to come home. Ritter was
crushed, but his father was overjoyed, seeming to have been waiting for

just such an opportunity. Ritter moved in with his father, staying close

until he left for college. The pair had a loving but rocky relationship that

sometimes erupted in physical fights. To keep the peace, Ritter went to

stay in his own trailer next door.

In high school, Ritter threw himself into music, playing multiple
instruments in multiple bands. He also devoured computer languages and

all the rave (21)

began programming everything from games to a graphic user interface.

When it came time for college, scrounging enough money for just the

application fees was a real problem. Like Shawn, Ritter wanted to go to

Carnegie Mellon in Pittsburgh, which had exceptionally strong music as

well as computer science, and he was admitted with a small scholarship.

But his parents directed him to Lehigh University, which awarded him a
much larger grant and was nearer to his successful uncle Don.
Ritter left for Lehigh in Bethlehem, Pennsylvania, at seventeen, tak-

ing his computer with him on the Greyhound bus. Soon he grew bored
with the computer courses and decided to work one summer at the lab of
Terrance Boult, eventually managing the systems for the man who was
founding chairman of Lehigh's computer-science department. "He's my
god," Ritter said. "He turned me on to [free computer operating system]
Linux, using free software. He turned me loose and trusted me." If Ritter

appreciated his mentor's trust, he didn't always keep his end of the bar-

gain. One Friday night, after smoking a nontrivial amount of marijuana,

Ritter used a cable modem to take down three thousand university

computers in about six minutes.

During Ritter's freshman year, his father died after open-heart sur-
gery. When Ritter returned to coUege, school seemed less vital. He began
spending more time online in hacker collectives, especially a group called
Asylum. Like the shifting allegiances of soldiers in Afghanistan or spies
in Vienna between the wars, the communities of hackers and security
professionals are surprisingly porous. Ritter wasn't atypical in protecting

Lehigh's computer system by day and taking it or other networks down

by night. While there are plenty of white-hat security workers and black-
hat malicious hackers, who assault large networks like Yahoo! for the
thrill of it, the majority of people are in the middle, gray hats who create

their own ethics. The debates within groups and among them are legion,

and those arguments can be complicated by the entrepreneurial aspira-

tions of the practitioners. Hacking for its own sake can be educational
and amusing, a power trip for a bored but clever teen. One way to turn

that skill into extra income is to publicly reveal a hole in a system, then

offer a "patch" to fix it. The demonstration of expertise can lead to secu-
rity jobs. But the timing and the publicity of the security two-step can
change everything. If you just teU the company of the problem, implicitly

( 22 ) JOSEPH MENN
suggesting that it hire you to resolve it, the step can be interpreted as

extortion. If you give the company notice of the problem, then post the
problem and the patch — or worse, just the problem — in an open forum
the very next day, you get wider recognition but can be criticized for

spreading the tools of darkness.

At Asylum, Ritter set standard rules for the hackers that congregated

there online: no gov, no mil, no money. In other words, don't hack gov-
ernment or military computers or try to profit from the activity. As they
trolled for computers to infiltrate, Ritter and his band often looked first

for systems that had already been compromised, leaving easier access.

Sometimes they stumbled onto other hackers still on the scene, be it a

university computer in Illinois or a corporate machine in Sweden. Mini-

wars would erupt for mutual entertainment, as each hacker sought to
boot the other out of the system. Once, after bouncing through his

customary three proxies to disguise where he was working from, Ritter

engaged in such a dogfight with an unknown adversary inside a big com-
puter network in China.
As Ritter honed his skills, he was invited to join wOOwOO, where he
took the nickname "Nocarrier," after the automated warning of a failed

modem connection. At the time he was also working part-time at AMP,

a computer firm not far from campus. He wasn't challenged much more
there than he was at school, and Ritter woke up one day and realized he

was getting fat. He quit college, moved to Chestnut Hill outside Boston,
and took a job writing security software for Netect Inc., which had opera-
tions in the United States and Israel. Soon BindView bought Netect and
its code, firing most of the employees other than Ritter. BindView left

him alone to do research, giving him what he considered a dream job at

the age of twenty. "I just hacked day and night," Ritter said. At Bind-
View, he excelled: One of Ritter's published articles revealed what became
known as the Palmetto Bug, a vulnerability afflicting 60 percent of the

world's Internet servers. BindView was publicly credited for the find by

CERT, the top computer-security organization in the United States.

If both Shawn Fanning and Ritter had tough childhoods, financially

and emotionally, Sean Parker's was a paragon of normality. Born in 1979,

all the rave (23)

Parker grew up in the northern Virginia suburb of Herndon. His father
worked as an oceanographer and his mother as a media buyer for

infomercials. Parker had two younger sisters and was a strong swimmer at

an early age, before his asthma grew worse and he had to carry an inhaler

from place to place. In school, Parker described himself as a "highly vari-

able student," with multiple As and Fs, depending on whether he felt like

concentrating on an assigned subject or on something else. At home, he

fooled around with his father's Atari and began learning to program.
Parker was torn about what to do with his Hfe. He wanted to write

books, and he was interested in philosophy, "but I was known as a com-

puter guy, and that usually won out." He learned the computer language

Basic, a little C, and some Perl. That was enough to pass as geeky in the

high school population, but his entrepreneurial skills developed even

faster. Parker tried to start a newspaper at age twelve; later, he grew

fixated on the idea that anyone could make money simply buying things
wholesale and then marking them up. "I went on a mission to find whole-
salers" of anything at all, he said, and found one in the eighth grade that
would sell him model planes in bulk. He resold the planes for a couple

hundred dollars in profit. Not long after that, Parker started his own
Web-design shop, then a security firm he called Crosswalk.
"Most of my productive time was spent either doing computer stuff
or entrepreneurial stuff," Parker said. Some of the unproductive time was
spent on Internet Relay Chat, though he chatted far less often than

Shawn and Ritter. On IRC, Parker met Shawn and future Napster engi-

neer Jordy Mendelson, both of whom joined Parker's fledgling Crosswalk.

Crosswalk was one of the security groups that published advisories on the
"man-in-the-middle" hack, which redirects Web servers to spurious sites

that grab visitor names and passwords. It wasn't a bad hack, but Parker

knew he wasn't the sophisticated engineer that some around him were
turning into. "I never was as hard-core a programmer as others," he said.
Instead, Parker was a brilliant talker, using what knowledge he had to

spin business ideas.

Those ideas always took precedence, as far back as a Fairfax County

science fair for high school students. Parker spent the majority of his

preparation figuring out what would get the most attention. "My mom
thought I was wasting my time, but I needed to come up with something

( 24 ) JOSEPH MENN
that was really hot," Parker said. "The Net was just breaking." At the

time, many were writing about software "agents" that would sift through

the Web and return information to users based on their interests. Parker

figured he could capitalize on the hype, and he wrote two simple algo-
rithms, one that searched the Web broadly and one that searched deeply,
showing that the former worked best to get information to people with
low-bandwidth connections. More important, Parker learned that the
same broad-and-shallow approach worked best in conversation. Most
people in America, investors included, aren't technical experts. They are

hke the science-fair judges were, appreciating someone who could synthe-
size concepts and explain in English how they fit together. Years later at

Napster, Parker's e-mail signature would append to each message a simi-

lar conclusion from science-fiction writer Robert Heinlein: "Specializa-
tion is for insects." Parker won $5,000, the first science-fair winner in
years who didn't attend a magnet school for science. He got job offers on

the spot and plowed the prize money into Crosswalk. The team there "bit

off more than we could chew," Parker said, and Crosswalk burned
through a couple thousand dollars before folding. "It failed because we
didn't have a cohesive organization. It was hard to keep a bunch of
sixteen-year-olds all over the country motivated and focused." Parker later

recovered the money by selling the domain name "Crosswalk.com" to a

Christian portal.
One day in 1996, Parker attended a local job fair and walked up to a

booth set up by Freeloader, at the time part of northern Virginia's pack of

hot Internet companies led by America OnUne and smaller Internet ser-

vice providers like UUNet. Freeloader sold programs that "pushed" con-

tent to computer users with techniques like those Parker had worked up

for his science-fair project. He found Freeloader's most senior employee

at the booth, Jamie Hamilton, and bragged that he could have knocked
off a version of Freeloader's flagship program by himself Hamilton was
more amused than offended. He offered an internship, during which
Parker wrote Perl scripts and generally distracted other employees,
Hamilton recalled. Rob Hoadley, then Parker's office mate, remembered
him as more interested in Linux and hacking than in doing what he was
supposed to. "He was a smart kid," Hoadley said, but Parker was tagged
with the nickname "Sprout" all summer.

all the rave (25)

 As graduation neared, Parker told his parents that he wanted to work
for a year before going to college. That wasn't true: Secretly, he planned to
work just long enough to hatch another business. During his senior year

of high school, Parker heard about an invitation-only day of interviews

for experienced managers applying to UUNet, the largest Net access
provider for businesses and one that enjoyed a good reputation for inno-

vation. He called the company and pretended that he had an appoint-

ment and was on the way, but had lost the directions. When he got there
in his standard intern garb, he saw thirty people in suits. He got a lot of

dirty looks, but each of the several UUNet staffers he met wanted to hire
him. Parker was "cocky but creative and amusing," said Jonathon Perrelli,

who headed UUNet 's hiring at the time. Parker came away with an
entry-level job writing internal software appUcations.

As at Freeloader, Parker networked and made one key contact, this

time Perrelli himself, a recent Virginia Tech graduate who had run a

small business before joining UUNet. Perrelli took Parker under his wing,
and they became good friends. Parker would bounce business concepts off

Perrelli or throw out ideas about how to do things better at UUNet.

Parker "had the unique ability to accompHsh a hell of a lot in a very short
period of time," PerreUi said. "So the rest of the time he envisioned the
future of connected networks, and usually he did that while he escaped
his cube to my office." Once when Parker wandered in, Perrelli was trying
to figure out how to process online job applications better. Parker took

over the whiteboard, started drawing with markers, and helped Perrelli
come up with a system that allowed UUNet to hire three thousand people
in less than two years. In return, PerreUi built up Parker's confidence and
dressed him in promotional UUNet gear until Parker resembled a fully
outfitted "UUgeek." Parker stayed a year and a half, until February
1999 —the longest he would hold any job, including his assignment at

Napster.

Perrelli also would come to play a part in the formative months of

Napster. And through him, Parker met other technologists and sales pro-
fessionals who would circle around the revolutionary start-up. Among
them were brothers Scott and Mike Shinn, hotshot engineers and secu-
rity experts who developed database technology that complemented what
Napster would do. In his other networking efforts, Parker kept in touch

( 26 ) JOSEPH MENN
with a customer whose computer server he had configured —Ben LiUen-
thal, who nearly became Napster's CEO.
first real

While Parker spun visions of how the Web could work better and
who could help him realize those dreams, his firiend Shawn Fanning was
experimenting with code and tossing around technical ideas in wOOwOO a

few hundred miles to the north. In his freshman year at college, Shawn's
roommate complained that nearly every time he looked for an MPS, the

link to the digital file was dead and the music was gone. There had to be

some way to fix that, Shawn thought.

all the rave (27)

 a big idea

BY THE FALL OF 1998, WHEN SHAWN FANNING STARTED AT

Boston's Northeastern University, digital music was still very much hit
or miss. MP3s had become the standard, growing in popularity largely

because they weren't encumbered by electronic straitjackets on their use.

Many services offered lists of songs in the format, including MP3.com,
MP3.lycos.com, and Scour.com. But more than half the time, the elec-

tronic links to those songs were broken —the song was no longer there.

Other sites required passwords or knowledge of File Transfer Protocol

commands for transmitting files. It was hardly worth the effort to try.

"The index would become out of date because the indexes were updated
infrequently," Shawn would testify. "I began thinking about ways to solve

the reliability problems."

Shawn was coming at the issue in the same way that many Internet
innovators had come at earlier roadblocks. The entire point of the World

( 29 )
Wide Web had been to make information available to people using what-
ever connections and computers they had, whenever they had them. "The
system should not constrain the user; a person should be able to link with
equal ease to any document wherever it happened to be stored," wrote
Tim Berners-Lee, the Web's inventor. "The basic revelation was that one
information space could include them all, giving huge power and consis-

tency." When Berners-Lee was doing his pioneering work, the content
available was static. Now content was changing more often, and Shawn
was about to try an ambitious method to help the system's users catch

up to it.

Digital music on computers had gotten off to a slow start, largely

because narrow-band connections meant that it took too long to down-

load anything containing as much data as a song. Some of the biggest

early consumers were fans of the Grateful Dead, whose members had
realized in the late 1960s that permitting boodegs of concerts would help
their paying fan base grow. (Dead lyricist John Perry Barlow, a prep-

school friend of the band's guitarist Bob Weir, would later cofound the
Electronic Frontier Foundation, which defended other music-sharing
services in court, but not Napster.)

College students drove many of the next advances in the spread of

digital music, including a turning point at the University of CaUfornia,

Santa Cruz. It was there in 1993 that Rob Lord and Jeff Patterson, two
computer- and information-science majors and fiiU-time music fans, tried

various methods for posting songs from Patterson's band, the Ugly Mugs,
to Internet newsgroups. The band spent $100 on software to compress
the music using MP2 technology, the best then available. And they
steered potential listeners to a free MP2 player, one made by a firm called

Xing Technologies. They got a few enthusiastic e-mails asking for more
music. The realty exciting thing for Patterson was that some of the mes-
sages came from places like Turkey and Russia, where it was hard to get

Western music.
Within a month, Lord and Patterson started what they dubbed the
Internet Underground Music Archive. The idea was that lUMA, with
the permission of the artists, would make available alternative music that
wasn't getting mass distribution. With only limited compression from the
MP2 format and slow dial-up modems, it could take half an hour to

( 30 ) JOSEPH MENN
download a three-minute song. But lUMA drew fans nonetheless. Lord,

who would later cross paths with Napster, took a very different approach
from the one that Shawn would take. The first songs he encoded to the

MP2 format, rare tracks by the Durutti Column and the Residents, he

kept in his computer for his own use. In a decision that would come to

appear quaint, and still later would appear to have been the right idea
after all, Lord didn't distribute those songs over the newsgroups for the
simple reason that he didn't have permission from the copyright holders.
lUMA cadged free equipment from Sun Microsystems Inc. and Silicon
Graphics Inc. and hired people from the Santa Cruz music scene, who by
1994 convinced other bands to pay in order to post their music.
When a newspaper article about lUMA appeared that year, the
record labels took note. Yet despite some internal debate, they did little to

encourage the new technology —or to fight it, since MP2s could also

spread music without the copyright owner's permission. Things changed

over the next three years. Connections to the Internet got faster. The
World Wide Web and the Netscape browser spread at fantastic rates,

making it much easier for people to find what they were looking for. And
in Germany, research efforts to improve video-compression technology
had spun off a vastly improved audio-compression technique. After
approval by the International Standards Organization, ISO-MPEG
Audio Layer-3 emerged, soon to be better known as MPS. The source

code was made available, so that anyone could distribute the tools for
encoding music to the new format. By eliminating data used to convey
silences, the MP3 technique fit much more sound into many fewer bits,

making transmission and storage much easier. And the developers hadn't

bothered to include any system for locking the data to prevent copying.
The software for opening and playing such files on computers got
better too, especially one called Winamp, cobbled together in 1997 by a
nineteen-year-old coUege dropout in Sedona, Arizona, named Justin

Frankel. A geek's geek, Frankel gave Winamp away and asked for a mini-
mal payment on the honor system if the users liked it, a process for soft-

ware known as shareware. Winamp wasn't the first MPS player, but it

brought together a number of features that quickly established it as the

most popular. Winamp let users make the player look like whatever they

wanted, and it could be customized easily to work with other programs.

all the rave ( SI

 Rob Lord left lUMA to join a music firm called N2K, which pub-
hshed a magazine, sold compact discs online, and put up websites for

Madonna and other rock stars. As he kept a close eye on the MPS scene,
Lord made it one of his top priorities to get N2K into some kind of
alliance with Frankel's tiny company, Nullsoft Inc. "I was kind of
shrugged off" by N2K executives. Lord said. So he asked Frankel if he
could join Nullsoft instead. "He said he wasn't very interested in turning
Nullsoft into a [serious] business, but that he would listen to ideas." Lord
had several. How about putting a picture of the product on the website?
How about selling ads? Ads, Frankel mused. Okay, see what you can do.
Lord went to ArtistDirect, another Web music retailer, and showed the
company the immense traffic Nullsoft was getting to its site as people

downloaded Winamp and other software. Lord returned to Frankel with

a six-month advertising contract from ArtistDirect and a check for

$300,000. A surprised Frankel asked his parents what to do. His father
recruited an acquaintance as a business-development man and teamed
him with Lord to write a plan. They returned with a white paper predict-
ing that if Frankel continued on his own, he could build a company worth
$1 million. With help, they said, it could be worth tens of millions.
Nullsoft hired both men. The company stayed very small, with five or

six people working in separate offices in Sedona and communicating over

IRC. They arranged advertising for the site and immediately began strik-

ing deals, including one to incorporate a modified browser that allowed

Winamp users to buy CDs from Amazon. And they made new versions
of Winamp compatible with the industry's secure digital formats as soon
as they became available. "I'm not about piracy," Lord said. He even

called the Recording Industry Association of America as a courtesy,

explaining what they were doing and giving his phone number in case the

organization had any questions.

The RIAA didn't have any grounds to go after Nullsoft, which was
distributing a product that could be used legally or illegally. But the trade
group certainly didn't like what was happening. The spread of the tech-
nology made it a simple matter for someone to buy a CD legally, rip it

into an MP3 format, and post it for others to download. David Weekly, a
Stanford University student, did just that — a lot — until Geffen Records
executives complained and university network administrators, already

( 32 ) DOSEPH MENN
upset at the massive amount of bandwidth that Weekly's visitors were

consuming, shut him down.

Musicians were divided from the beginning. Unknown acts saw the
MP3 phenomenon as a way to spread their music. Brand-name acts,

which had more to lose through piracy, were naturally more conservative.

But even some of them wanted to release the occasional track digitally,

often having to fight their labels for the right to do so. When they won,
the effects could be huge, as Michael Robertson found after he opened
the website MP3.com in the fall of 1997. Robertson knew almost noth-
ing about music, he had no technology of his own, and his business back-
ground was at best undistinguished. But he knew college kids were
constantly searching for MP3s on the Internet. Robertson looked up the
man who owned the domain name MP3.com, which the man had picked
because of his initials, and bought it for $1,000. Robertson paid another
$2,500, plus $500 a month, to take over the content of a Netherlands site

that offered a guide to related software available for sale.

The day that Robertson's version of the site went up with just the

software guide on it, he got ten thousand Web visits and a call from
someone who wanted to advertise. "We didn't know anyone. We didn't

even know, like, one person in a band," Robertson said. Instead, he

displayed articles about MP3s, which in the early days he had to write
himself, and posted links to where MP3s could be found. Small bands
sent in clips, usually of singles, in hopes of generating sales of full CDs.
Some big-name acts followed suit, including Alanis Morissette, who
accepted pre-IPO shares in MP3.com and the firm's sponsorship of a tour

supporting her second album.

One of the clearest displays of the power of MP3s in promoting acts
would come in 1999, with Tom Petty 's CD Echo. Trying to build buzz for
his mature client among the younger set, Petty manager Tony Dimitri-
ades spread the word that one song would be available as a free download
at MP3.com. He had neglected to check with the singer's Warner Broth-
ers label, which promptly chewed him out. But Warner allowed him to

keep the song up for one day. And during that day, the single "Free Girl
Now" was downloaded 156,992 times. There is no way of knowing how
many of those downloads were later copied and spread to others; what is
clear is that the gimmick helped Echo debut in the Top Ten. But even that

all the rave (33)

would not warm the industry's heart to any kind of digital distribution.

"They won't cede control," complained Thomas Dolby Robertson, of

"She Blinded Me with Science" fame, who is a serious music technolo-

gist. "Right now, we have a great system for them and one that screws the

artist."

Shawn Fanning's big insight, like his instruction, came from his time

on Internet Relay Chat. Similarly to the more prevalent instant messag-

ing of today, IRC knows who is on a channel at any time. It has, in the

jargon of the industry, "presence awareness." Search engines, on the other

hand, may scan the Web only daily or weekly. Especially if the search

results turn up a private person's files, instead of those controlled by a

business, the content on the site may well have changed or be unavailable.

"My idea was to have a real-time index that reflects aU sites that are up

and available to others on the network at that moment," Shawn said. The
easiest way to accomplish this was to have a central computer server, to

which everyone would connect. "Anyone who disconnected from the

server would be immediately dropped from our index," he said.

In a way, the core of the Napster system was an index of other

indexes, the lists of music files people kept in folders on their own
machines. Like a telephone switchboard operator in the old days, the
Napster system would take an inquiry for a specific song from someone,
find another person who had a matching offering, connect the two, and
then hang up to let them finish the transaction in private.

Shawn ran his idea past a few adults, who gave him various reasons
why it wouldn't work. Too complicated, they said. Shawn listened atten-

tively, weighed their arguments, and didn't buy any of them. "Somebody
would say something negative about it, and some of that stuff really got to

me at first. I definitely used that to motivate me," Shawn said. He

believed from the first that Napster could be very important. Back then,
he didn't worry much about legal issues, reasoning that individual users

were taking responsibility for offering up every song. Shawn started by

designing the search engine to scan the lists of offerings. Then he wrote a

draft of the software that would run the server that connected everyone.
Finally he turned to the "client," the application that the user would see.

( 34 ) JOSEPH MENN
"I wanted to make this software work, and to prove my concept for file

sharing on the Internet," Shawn said.

The only real problem was that Shawn had never written a program

to run on Windows, the computer system used by just about everybody.

So he started cramming Windows the way his fellow students were cram-
ming for exams, drinking caffeine-laden soft drinks by the gallon and

banging away on his laptop. It took just a few weeks, and the first rough
version of Napster was done.
The most elegant sociological element of what would grow to eighty-

five thousand lines of code was that Napster both gave and took away. If
you used the system to look for a song and then began downloading, the
system would open your MPS files to others at the same time unless you
actively blocked it from doing so. Like magic, the more people who were
seeking music, the more music would become available.
Another important innovation was the system architecture. Most
huge stores of information are housed on databases controlled by a single
computer server. While people can get access to that information from

different places, the data is all mashed into one giant machine. With
Napster, such a server would have been overwhelmed in minutes by aU

the space required for MP3s. Shawn wanted Napster to work more like

such search engines as Google or AltaVista. Those search engines show

you data anywhere on the Web that is reachable and that they can find,

but they leave the data where it lies for you to retrieve. That meant Nap-
ster required central servers only to list who had possession of what, not

to store the actual songs. At the peak in 2001, that would mean about
150 servers —not a number weU into the thousands, affordable only by
the biggest corporations.
From very early on, Shawn turned for help to his more experienced
comrades on IRC. "I could always ask them a question about protocol
design or just shoot a question to the channel and have somebody answer
it. I wouldn't have been able to write Napster without IRC and without
these groups of people," Shawn said. "The amount of time it would have
taken me to find answers in books or find the resources I needed, I would
never have finished it on time. I definitely owe it to a lot of people."

Most of those people were on wOOwOO, the IRC channel founded in

1998 by Matt Conover, the sixteen-year-old hacker using the handle

all the rave (35)

Shok. Among Conover's real jobs were stints at the RSI security firm
and later, aided by Jordan Ritter, at BindView. A mix of white-, black-,
and gray-hatted hackers, wOOwOO kept its IRC conversations limited to

members. But the group also maintained a pubHc website. There it pub-
lished some exploits and patches on a range of systems. In June 1999,
the word "wOOwOO" was one of the top twenty most-searched-for terms
on the Internet search engine Google. (Google was more of a search

engine for Internet experts at the time, only later developing a mainstream
following.)

Shawn was a regular on wOOwOO, and so was Ritter. Ritter was on the
channel in early 1999 when the hacker he knew as Napster sent him and
the others an application, telling them to check it out. It was the first ver-

sion of the program, and Ritter wasn't blown away. "What are you going
to do with it?" he typed. "Is it free?" The reactions of others in the chan-

nel varied. Seth McGann, known as Minus, was amazed. "I was pretty
impressed. But a lot of people I showed it to didn't really get it," he said.

Members of wOOwOO often traded pieces of code. They also swapped

security exploits and the patches that would fix them, exchanged digital

pictures of their girlfriends, and generally gave each other a hard time.
While they made fun of it, the group frequently used the "elite" slang of

IRC-speak, designed in part to outwit security programs that search for

red-flag words like "hacker" but kept aUve mostly because of the sense of
in-group cool it promoted. As "halflife" once opined to the group: "nap-
ster is a darkslde mp3 warez hqr." "Warez" refers to pirated software:

Thus, "Napster is a dark-side MPS pirated software hacker."

Shawn kept wOOwOO apprised of what he was doing, eventually send-

ing out an improved "beta" version of his software every few days. Ritter
and other senior wOOwOO members like Dug Song helped by giving
advice on the state of the art and steering Shawn to where he could learn
more. Song, for example, pointed Shawn to prior work on ad hoc net-

working and routing. "He took it and ran with it," Song said. The
Napster program came to dominate the wOOwOO discussion after each
improvement, so much so that a new "Napster" IRC channel launched

( 36 ) JOSEPH MENN
with a handful of people from the wOOwOO channel. Conover initially

disapproved of the way others in his group had glommed onto Napster. "I

was opposed to it," he said. "To me, it was leeching off the success of a

member. It bothered me at the time." But he had no idea how important

the program was going to be. If he had realized it then, Conover admit-
ted later, he would have been right there debugging the code with the rest

of them, "I didn't want to sell out cheap," he said. "Now I regret it."

McGann was one of the earliest testers of the beta version of Napster.
At one point, he, Shawn, and two other people were the only ones using
the program. The system was poorly set up back then, using no database
software to house the lists of songs. It was buggy and would freeze up for

no apparent reason. But McGann, who had little patience for tracking

down MP3s on IRC channels, realized he still could triple his music col-
lection in weeks. While he was testing the system, he sent Shawn a pri-

vate e-mail. "Do you realize that this is going to change everything?" he
wrote. "Yeah, I know," Shawn replied. McGann gave Shawn some sample
code for recognizing songs by electronic tags. And he copied the system
for his roommate, a nonhacker who couldn't believe his good fortune. It

was just so easy to use, the roommate told others. And the smooth give-

and-take of music could be almost hypnotic. The word kept spreading,

and others logged on before Shawn's system was ready for them.

Outside of the wOOwOO circle, Shawn was chatting about his inven-

tion with his old friend Sean Parker on another IRC channel called

"dweebs." And Parker, being Parker, immediately started thinking about

how to make a business out of it, regardless of the fact that the code was
still buggy. Shawn "had very little business acumen," Parker said. "He just
wanted to code it." Parker had a point: With more and more people
coming aboard, the system needed money for more servers.

Back in Boston, Ritter was getting more interested in Shawn's code

from another angle. He peppered Shawn's e-mail address with one-line
questions about the code. Finally, Shawn showed him what he had writ-

ten. There were some obvious bugs, which Ritter fixed, and the program-
ming was raw. Among other things, it was written in C++ with

all the rave (37)

unnecessary complexity, because it didn't take full advantage of that lan-

guage's advances over the more rudimentary C language, which Shawn

understood better.

The server side of the program was another problem. WOOwOO's

Evan Brewer managed the server system at first, but he loaded it up with
multiple security programs. That would have made hacking the system
harder, but it ate up memory and slowed the server to a crawl. After some
harassment by Ritter, in late June Shawn turned control of the server over
to him. Ritter wasn't getting paid anything, but he was expected to fix the

system when it crashed, and he did. He was more interested in the pro-

gram than the music; he doesn't remember what song he searched for

first. Maybe something by Steely Dan.

Because the music itself was stored on cUent computers, Napster
needed far fewer servers than it otherwise would. But the servers still had
to route traffic and handle indexing and other complex functions. Hitter's

solutions were elegant, according to Scott Shinn, the engineer Parker had

met through Jonathon Perrelli at UUNet. "Shawn had the brilliant idea

and prototyped it in a way that was practical," said Shinn, who had
helped put the White House and the Securities and Exchange Commis-
sion online and held senior technical positions at many firms, including

Cisco Systems Inc. "He was able to put it together and put it in front of

his little sisters and his grandmother and they would be able to use it. Jor-
dan took what Shawn had put together and made it scale up to five hun-
dred thousand users. Those are numbers AOL has to compete with, and
AOL needs acres of equipment. Jordan did some really brilliant stuff."
Shawn did some of the coding in his dorm at Northeastern during
the week, then went full steam at his uncle's office in Hull on the week-
ends. He kept himself awake as long as possible to finish one piece or
another of the Napster puzzle. One of the biggest challenges was an early
attempt to link the multiple servers together, so that people could look for
music, or each other, no matter which piece of the system they had signed
onto. Shawn grew obsessed with figuring out how to do this, and he took
advantage of a conveniently stored case of the ultracaffeinated soft drink
Red Bull. (Ritter had another method for keeping the intense concentra-

tion needed for long stretches of programming: He took Ritalin, usually

prescribed for children with attention deficit disorder.)

( 38 ) JOSEPH MENN
 "We didn't have any money, and we didn't have Coke left, and I was
literally trying to finish this," Shawn said. "And I looked at the Red Bull,
and I'm like. It has caffeine in it!' I literally went through most of a case

that time, and I was up two or three days. . . . The strange thing about

Red Bull is that it has this really weird ability, and it's not just the

caffeine, to keep you really sharp and focused, even though you've been
up for two or three days. Usually [on caffeine] you get hazy and you're
wired but you're tired, mentally not functioning. But [on Red Bull] you
can focus, and you can think logically and clearly. You get tired, but usu-

ally it just gets you tired to the point where you're not Hkely to get dis-

tracted. You're just kind of a zombie, but you can focus and think, and it

helped to do massive amounts of programming where I had thought of

the design before, and I just had to do the programming." Red Bull abuse
also has side effects, Shawn learned. "By the end of it, I called the cops

because there was a car across the street the second night and I thought it

was going to do something bad." Not people in the car, mind you, or even

the people who owned the car, wherever they were —the car itself "I was
slightly hallucinating by then," Shawn said. "I remember calling the cops,

and they said something about it not being in their jurisdiction, call

somebody else. And then I realized I was kind of going crazy."

Shawn often worked alone, leaving fewer astonished witnesses to his

intensity. In something that would seem strange to anyone but an IRC

devotee, he never even met Ritter in person for two months after Ritter

joined Shawn's cause, though they lived just a few miles apart. Finally,

after an August evening of hitting parties, Shawn came by Hitter's apart-

ment. Shawn's hacker friend, who would later join Napster, had been
drinking too much to be deemed presentable, and Shawn made him wait
in the car as he went upstairs. Shawn and Ritter chatted about the pro-

gram, and Shawn said he would be moving west, to He start the business.

asked Ritter to come. "How do I know this is real," Ritter thought. "Who

is the management team? How are we going to sell it?" He was skeptical
about other things as well, and he decided not to chuck his job and adult
life. "I had lots of issues. He didn't really have answers." But Shawn's
enthusiasm was boundless. "It's going to be fucking huge," he told Ritter.

all the rave (39)

 ,Vgt*.

birth of a business

JOHN FANNING TOOK TO BUSINESS EARLY, A BLUE-COLLAR

Sean Parker with more street sense and less polish. He bears little physi-

cal resemblance to his nephew, having smaller eyes, thinning brown hair,

and a bantamlike forward lean to his posture. Fanning graduated from a

vocational high school in Hanover, Massachusetts, in 1982 and took

courses at Boston College beginning later that year. He continued off and
on for eight years without graduating. Fanning worked in construction
and studied to be a contractor. His stint at Boston-based Fidelity Invest-
ments looked better on his resume. Fanning said through an attorney that
he worked there as a "senior trader" handling high-risk investments and
also spent time in the "telecommunications group," which the lawyer said
dealt with holdings in the telecommunications industry. Fidelity said

something different. According to spokesman Vin Loporchio, Fanning

( 41 )
worked there two years with the title of national console representative,
from which position he redirected incoming calls. Console representatives
do not make trades: "They are responsible for watching customer call vol-

ume and routing customer calls appropriately," Loporchio said.

Wanting to run his own firm, Fanning was still in his twenties when
he inquired about the struggling computer business of a man he met
playing squash at Bostons University Club. Around 1990, Fanning
bought Ed Walter's Cambridge Automation on credit. The company took
in big general-purpose computers from manufacturers and resold them to
laboratories and other customers. But the business models were changing
then, and large computer makers started making more of their sales

directly. Under Fanning, Cambridge Automation limped on for two more

years. Fanning spent much of his time there trying to strike new deals

with creditors, from the phone company to the computer suppliers that
were the firm's lifeblood. When some businesses demanded their money.
Fanning would call up and sound outraged, insisting on speaking with
superior after superior until the creditor gave up and offered new terms.

"He learned how to look the big boys in the eye and not blink," said

company manager Jack Martin. Fanning's style of running the company

was unorthodox. "John was crazy," Martin said. "He would call a meeting
for 6 A.M. on a Sunday, because that way he could tell who gave a damn."
Martin brought in a friend. Jack Nevil, as controller of the company, a

sensitive position given the firm's precarious finances. Nevil, who would

also play a key role in Fanning's next venture, had made a lot of money in
real-estate deals. But his history still left something to be desired. In
1985, for example, Nevil had been fired after three years as treasurer of
Aunyx Corp., where the majority owner accused him of spending com-
pany money for a Cadillac used by Nevil's family and other conflicts of
interest. He sued for wrongful termination. "Until the termination of his
employment by Aunyx, Nevil engaged in a pattern of breaching his fidu-

ciary duties," the company said in Nevil's lawsuit, which was dismissed by
agreement in 1987.
That dispute was just a taste of things to come. In 1989, some of
Nevil's real-estate deals went bad and resulted in massive defaults to

lender Rockland Trust Co. Rockland won a judgment of more than $7

( 42 ) DOSEPH MENN
million against Nevil personally and collected more than $5 million from
one of his codefendants.
At Cambridge Automation, Fanning, Martin, and Nevil weren't able

to keep things going for long. Key supplier Unisys ultimately sued the

company, winning a still-unpaid $700,000 judgment. The company dis-

solved without paying off the purchase loan, according to Walter. Yet

even as the business was sinking. Fanning carried himself like a successful
sales executive, dressing in good suits and driving expensive cars. "He
took over a tiny company, and it continued to fail," said Duncan Audette,
a Cambridge employee. "I didn't think he had much ability as a manager,
but he liked to appear wealthy and flashy." Fanning also remembered his

allies, even Nevil.

Fanning's next try at business success began with his love of chess, a
game that drew him and many others into computers. Just like math and
music, chess reaches some intuitively analytical part of the brain. All three
areas have turned out child prodigies for generations. As access to com-
puters spread, prodigies began showing up in that field as well. With such
deep ties between chess and computers, chess players became rapid
adopters of the Internet as a means for matching wits remotely.
Chess enthusiasts designed a computer server for those seeking fellow

players. The free server moved from university to university until it

arrived at Carnegie Mellon in the early 1990s with about fifty people
logged in at any one time, enough to find a partner of roughly equal
One
strength. regular player was a CMU computer-science professor
named Danny Sleator. Sleator enjoyed the system, but a number of bugs
in it bothered him. And he didn't like the time clock, which turned some
late-developing games into mad rushes at the end. He preferred a mecha-
nism that gave each player a bit more time based on the number of moves
they had made already. Sleator asked the people running the system if he
could tinker with the system, and they agreed. In 1995, as the Web's pop-
ularity was increasing, Sleator decided to try to make some money back
from his improvements. With his wife and two other online chess players,

he formed Sleator Games Inc.

all the rave (43)

 If he had it to do over again, Sleator said, he would have left the old,

buggier version of what was called the Internet Chess Server up and
running for anyone to play for free. Instead, he announced that anyone
already on the system would have six more months for free, then have to

pay the same $49 a year he was going to charge new players. At the time,

very few sites charged for anything on the Internet, and some CMU
students were outraged. They cobbled together another system, calling it

the Free Internet Chess Server, and in the spirit of the open-source

movement, they posted their code to the Web for anyone else to modify
for their own systems. That effort took half a year. By then, Sleator's

system had critical mass and could advertise that it had more players, bet-

ter customer service, and stronger features than the free alternative.

Sleator hired students from time to time, and others volunteered to help
administer the system, which did business as the Internet Chess Club, or
ICC. One of the helpers was Dmitry Dakhnovsky, an online chess player
from a California high school whom Sleator had recommended for

admission to the university.

John Fanning used the ICC service heavily and played at an above-
average level. Today he has a U.S. Chess Federation rating of 1813, mak-
ing him a Class A player in the federation's traditional rankings: That's

better than Classes E through B but shy of Expert and Master. On the

system. Fanning struck up a relationship with another of Sleator's players,

the emotional and brilliant Roman Dzindzichashvili, who had twice

shared the U.S. championship. Dzindzichashvili earned a small amount

for playing games and giving commentary on Sleator's system. Fanning
helped Dzindzichashvili produce a series of instructional videotapes on
chess strategy, and he began looking for a place to sell them. According to
e-mails from Fanning, in early 1995 he offered to buy Sleator's company
for $50,000 plus future royalties. Sleator turned him down.
In December of that year. Fanning asked how he could advertise
Dzindzichashvili's tapes on Sleator's system, and Sleator's wife and part-

ner offered a package for $500 that would include a mass e-mail to mem-
bers of the ICC. (Now known as ChessClub.com, Sleator's system is the

most popular chess site on the Web.) Fanning didn't respond, Sleator

said. He had figured out a way to get the e-mail addresses ot the club's

members on his own, and Fanning sent them all offers to buy the video-

( 44 ) DOSEPH MENN
tapes directly. Sleator sent Fanning a bill for the spam, which he didn't

pay, and the argument escalated until the company kicked Fanning off the

service and refunded the rest of his membership fee.

That got Fanning mad. He hired Dzindzichashvili and Dakhnovsky,

Sleator's volunteer, who in turn helped Fanning recruit other Carnegie

Mellon students, including Ali Aydar, who was working on the Free

Internet Chess Server. The team used the code from the free project to

start a rival service for Fanning, which he named Chess.net. And Fanning
didn't stop there. In 1996, he filed a lawsuit against Sleator Games in

Massachusetts, claiming that the firm had improperly barred him from
advertising and thereby cost Chess.net $248,000 in potential profits. At
first read, the suit appeared ridiculous. But it allowed Fanning to capital-

ize on resentment among chess players who had to pay to play on

Sleator's network. Chess.net posted inflammatory statements like this one
on its site: "Chess.net was started by International Chess Grandmaster
Roman Dzindzichashvili . . . with the help of the company that produces
Roman's instructional chess videos. . . . Roman was forced to do this by

ICC, who prevented Roman from selling his video tapes on ICC." As the
rhetoric flew in chess chat rooms and on bulletin boards. Fanning built a

following by allowing free games and charging only for additional ser-
vices. And in the legal process known as discovery, Fanning sought to
learn all of ICC's business partners, a move that struck Sleator as a bid to

obtain "a list of people they should contact if they want to run a chess
server." The sniping and bad blood continued as the lawsuit dragged on
until 1999, when Fanning's lawyers won court permission to abandon it:

They told the judge that their client owed them $94,341.82 in legal bills.

For Chess.net, Fanning used a core of Carnegie Mellon students

and graduates, including Dakhnovsl^^, Brian McBarron, Matt Ramme,

and Aydar, a son of Turkish immigrants who was swayed by Fanning's

claimed business connections. Because Fanning had paid Dakhnovsky so

little for Chess.net work while he was finishing college, Dakhnovsl^
demanded an unusual price to move to Boston: a new BMW Z3. Much
to his surprise, Fanning called his bluff and agreed. Dakhnovsky flew to
Boston, and the two men picked one out. Fanning put an $8,000 down

all the rave (45)

payment on the $48,000 car. The paperwork on the sale listed two buyers:

Chess.net parent Multimedia Engineering Corp. and Dakhnovsky. But

only Dakhnovsky 's signature appeared.
Fanning and his young charges raised $500,000 in seed funding from
a Salomon Brothers executive and others. The employees got small equity

stakes, with Fanning keeping majority control of Multimedia Engineer-

ing. That was "an invitation to disaster," McBarron said. "He doesn't

really inspire trust." Ramme said that the team was too inexperienced in

business to know better and had initially been overly influenced by what
they thought was Fanning's past business success. "We were working for
free, essentially," Ramme said. Fanning "stopped talking to me because I

was the least tolerant of his bullshitting." Ramme was the first to leave.

When Dakhnovsky also quit, he left the new car behind, and Fanning
gave it to Shawn. But Fanning also stopped making payments on the car,

and the financing company came after Dakhnovsky tarring his credit

record to this day. After about a year, the car was repossessed.
Fanning was committed to the chess company, and he did some
things right. The technical system was solid. Fanning hired other world-
class chess experts, and he made a deal for referrals from America Online
that brought in thousands of new players. The internal management was
another story. The programmers soon discovered that the office rent,
other bills, and even paychecks were going unpaid. Aydar in particular
confronted Fanning about his concerns over where the money was going.
"Obviously, the money was misspent," Dakhnovsky said. Fanning reas-

sured the programmers that a good man was handling the books —none
other than Jack Nevil of Cambridge Automation, Aunyx, and the $7 mil-
lion judgment. Aydar wasn't impressed, especially after he went late one
night with Fanning to bail Nevil out of the local jail.
Fanning also mixed his personal and business affiairs. As late as

August 2000, a lumber-supply company won a $1,934 default judgment

against John Fanning in small-claims court after "MM Engineering"
failed to pay what it owed. The judgment still hadn't been paid nearly a
year later, according to lumber-firm president Bill Mischel. And billing

records from 1997 show thousands of doUars flowing back and forth

between Multimedia Engineering and the personal credit card of Fan-

( 46 ) JOSEPH MENN
ning's wife, Coreen Kraysler, a portfolio manager at Independence Invest-
ment in Boston, shortly before the card was revoked.
The problem with Kraysler's credit card was unusual: Normally, Fan-
ning insulated his wife from his business The HuU condominium
issues.

where they lived and the house he was rebuilding at 2 Summit Avenue
were both in Kraysler's name, protecting the properties from any debt
collectors going after him. Whoever the owner of record, the house was a

source of pride for Fanning. The mansion overlooking the Atlantic was

condemned when Kraysler bought it for $450,000 in 1996. Fanning

threw himself into a dramatic overhaul of the wood-frame Victorian. By
2002, it had six bedrooms and four bathrooms and was valued by tax

officials at $1.4 million.

But as Fanning's home improved, his business declined. The last
straw at Chess.net came when Aydar demanded to see the books. Fan-
ning took him to Nevil's home, and the records were in shambles. Aydar
found suspicious checks from Multimedia accounts to building- supply
firms and unexplained women. And the living conditions were so foul

that each of the instructional chess videotapes Nevil was storing for

shipment had a putrid smell to it. Only then did Fanning fire Nevil. The
financial problems drove several employees away from Chess.net, includ-
ing a young friend of Shawn's named Tarek Loubani. "I never learned so

much about dealing with creditors" as then, Loubani said.

Numerous lawsuits from the late 1990s show that Fanning's money
troubles extended well beyond Chess.net. In mid-1999, the year of Nap-
ster's birth, a court entered a default judgment against him over a $17,529

bank debt. Later that year, he lost another judgment for $26,759 owed to
collection agency Creditrust. The first debt would prove enough to deter
the first venture-capital firm that Napster courted, Draper Atlantic. And
Fanning's wife was not immune. Her condominium complex sued her in

April 1999 for unpaid fees over the unit she bought in 1988. That case
was settled the following year. More serious was the 1998 collection case

filed by Kraysler's credit-card company for more than $13,000. In April

1999, Household Bank of Nevada won a default judgment against
Kraysler for the full amount.
In the summer of 2001, well after Fanning had come into money by

all the rave (47)

selling shares in Napster, he finally responded to the two large judgments

against him. But rather than simply pay off the debts, he fought back Uke

a wolverine. Fanning hired lawyers who filed motions to vacate the judg-

ments on the grounds that the creditors had his address wrong and hadn't

served him with the paperwork. Fanning even countersued Creditrust for

a host of alleged wrongdoing, including violations of credit-collection

statutes and infliction of "emotional distress."

It was a stretch for Creditrust to agree that since Fanning had never
been served, he didn't officially know about the suit against him. The firm

had gone so far as to enUst the Plymouth County Sheriff's Department

to hunt Fanning down and bring him to court. Normally when the Plym-
outh sheriff gets such a request, his department simply sends out a letter.

That's almost always all it takes to get the defendant to appear in court

when he or she is supposed to. Sometimes it takes a phone call. On a very

few occasions, the deputies have to go out and look for someone in order

to make a form of civil arrest. With Fanning, deputies would have to go

out on foot —not once or twice, but a total of eight times, according to

Plymouth sheriff's spokesman Mike Seele, all without success. "The guy
was pretty good at hiding. We put a lot of shoe leather and effort into
that guy," Seele said. A frustrated deputy reported to the Creditrust

lawyer that he had done everything he could. "Defendant will not come
into court," he wrote.

When Fanning's attorney filed the motion to vacate the judgment,

the Creditrust lawyer was beside himself Obviously Fanning knew about
the case, as demonstrated not only by his efforts to dodge the sheriff but

by the Creditrust lawyer's conversations with Fanning's lawyer. Neverthe-

less, without a proper service of the documents. Fanning was able to get
the judgment vacated and start the suit over from the beginning. The
other credit judgment was also vacated, leaving it to that creditor to file

suit again. Neither case had been resolved by the time of this writing.
Fanning responded in a more conciliatory manner to the $13,000

judgment against his wife, whose wages were nearly garnisheed by her
employer. In that suit. Fanning interceded with the bank and negotiated a
deal. On September 30, 1999, a month after he raised the first outside

investment in Napster and sold some of his shares. Fanning sent a check

( 48 ) JOSEPH MENN
for $5,685 to the bank to fulfill the compromise settlement terms, and the
case was dismissed.

Fanning's willingness to mix it up with opponents didn't stop at the

courthouse steps. "I'm a fighter," he told one interviewer. "I don't let peo-

ple push me around." In January 1999, Fanning was charged with assault

and battery with a deadly weapon — his shoes — after he kicked and
punched the maintenance man at his condominium complex on the
morning of December 31, 1998. The two men had a history of animosity

over a junked convertible in the parking lot, which maintenance worker

Robert Lynch said he had asked Fanning to move. On this morning.
Lynch said he found a Christmas tree in Fanning's stairwell and a "nature
trail" of pine needles. He knocked on Fanning's door, which Fanning
opened and then closed without a word. Lynch said. Angered by the
reaction. Lynch unwisely dragged the discarded tree out into the parking

lot and put it on top of Fanning's old convertible.

Later that day. Lynch encountered Fanning and his brother David,
and they beat him badly, according to the district attorney. "They seri-

ously attacked me. me in the face," Lynch said.

John Fanning kicked
"They threw me into the wall. They got me really good." His cheek was
fractured and the area around his eyes cut up. He needed stitches in two

places and was laid up for a week. Lynch told the judge in the case.

Lynch was charged with malicious destruction of property for damaging

Fanning's old car but wasn't ordered to make any restitution. After he

finished three months of pretrial probation, the charge against him was
dismissed.

The criminal proceedings against the Fanning brothers continued for

more than three years. After the beating, John Fanning moved out of the
sixty-six-unit complex and into the big house on Summit Avenue. His
brother David moved into Fanning's old apartment and was later charged

with a new count, intimidating a witness, after he allegedly threatened

Lynch and warned him to drop the case. "He came up to my car and
punched on the window and tried to get in," Lynch said at a court hear-

ing. Since aU sides had been ordered to stay away from each other. Lynch

all the rave (49)

couldn't roam the building and therefore lost his job, he told the judge.

David Fanning, who like his brother had been charged with assault and

battery with a deadly weapon, pleaded no contest to the reduced charge

of assault and battery and was sentenced to two years' probation in Febru-
ary 2002.

John Fanning made out much better. The district attorney pushed for

the same result his brother received — a no-contest plea and formal proba-

tion. But Fanning's lawyer stressed his client's business prowess and his

growing family. After noting the existence of related civil lawsuits, the

lawyer argued against a no-contest plea. "There are serious and collateral
consequences to Mr. Fanning if Mr. Fanning were to admit to sufficient

facts or be found guilty of any charges," he said. Instead, he asked the

judge to impose a short pretrial probation, like that Lynch had been
ordered to serve. Assuming no further problems, that would mean the

charge against John Fanning would eventually be dismissed. With that,

the lawyer said, "this matter can be concluded in the criminal courtroom,
and Mr. Lynch can have his day in a civil session, if that's his desire."

Over the objections of the prosecutor and Lynch, the Hingham judge
agreed. John Fanning received six months of pretrial probation beginning
in February 2002.

Six months later, the charge was dropped. But that didn't end the

matter. Lynch was pursuing a suit he filed in late 2001 against Fanning,
his brother, and Fanning's wife, who owns the $200,000 apartment. (Fan-
ning has countersued for assault, trespass, and defamation.) And the

condo complex workers' compensation insurer sued John and David

Fanning for reimbursement of Lynch's $6,000 in medical bills and
$45,000 in lost wages stemming from the assault. (Fanning countersued
the insurer as well, claiming invasion of privacy and intentional infliction
of emotional distress.)

All told, John Fanning's background certainly marks him as unusual

for a leader of a firm on the cutting edge of technological innovation. He
had the chance to become one only because of the happenstance of his
blood tie to Shawn. But there is something deeper at work here as well.

In its earliest days, the Internet was designed by nonprofit researchers

working in the government and at universities. One of the most impor-
tant differences between their work and what had gone on before, at such

( 50 ) JOSEPH MENN
change-resistant places as the telephone monopoly, arose from the fact

that the Internet's architects had no idea what the ultimate use of their

creation would be and didn't try to direct that evolution. Instead, they

designed it to carry almost any sort of traffic, without discrimination

among different sorts of data. Build an application that runs on your
computer, and it will work across the wires of the Net. Later, the World
Wide Web itself could have been patented by Tim Berners-Lee. But

Berners-Lee wasn't interested in getting rich. He just thought it would be

a good idea if other people adopted his designs and communication
improved, and he made it easy and free for them to do so.

Stanford law professor Lawrence Lessig and others have argued con-
vincingly that the reason innovation happened so quickly on the early

Internet was that so much of its design was open and not driven by the

quest for quick profit. And Shawn Fanning fits into that tradition. He
didn't release Napster's underlying code to the public, as Linus Torvalds
did with the free operating system Linux, but neither was he driven by
the goal of getting rich by any means necessary. "If Napster had magically
had Shawn in charge, I think his attitude would have been to make a

deal" and stay on the right side of the law, said Shawn's father, Joe Rando.
"He started it because he thought it was cool. Then later, he thought
maybe it was a way to make a living."

By the late 1990s, the ideals of the early Internet, as articulated by

Shawn's intellectual predecessors, were giving way to something com-
pletely different. Microsoft's Bill Gates had shown that intense focus on
business strategy could trump superior software. And the subsequent gold

rush mentality of people seeking tens of millions of doUars in a hurry

didn't include concerns about what was good for the overall development
of the technology. By the time Napster came into being, the Shawns of
the world were no longer running the show.
"Through 1996, most of what happened to the Web was driven by
pure excitement," Berners-Lee wrote. "By 1998, the Web began to be
seen as a battleground for big business and big government interests." A
year after that, he might have added, the Internet was the playground of

yet another new generation: people who spoke the hardball huckster lan-
guage of Silicon Valley. People, in other words, Hke John Fanning. Their
styles and their tactics varied one from the other. But deep down, there

all the rave ( 51 )

wasn't much of a difference between John Fanning and some of the ven-
ture capitahsts with whom he would be dealing. "The unfortunate part of
the story has to do with mania," Rando said. "Unfortunately, Shawn got
taken along for that ride."

In the summer of 1997, Shawn practically lived at Chess.net, sleeping

on the couch in the living room of the crew's rented house as the firm

grew to about a half-dozen employees. "He did more listening than talk-
ing," Chess.net colleague Brian McBarron said. "When he gets interested
in something new, he dedicates all of his resources to mastering it, and
then he goes beyond that. He just has a single-mindedness that made
him proficient." Ali Aydar and Tarek Loubani both said they had seldom
seen anyone as focused as Shawn. "I don't think people can appreciate
how hard he worked. This was his way out of the 'hood, out of every-
thing," Loubani said. Shawn gave up sports and pretty much everything
else to program, blowing off steam only by playing the computer game
Quake 2 with his friends. It was a life of full-time hacking with few frills

or even decent meals. "We ate at Burger King four or five times a day,"
Loubani said. But Shawn was having a blast. Looking back on that

summer, both Shawn and Aydar remembered what was probably just a

coincidence and not a sign from God: Aydar drove Shawn to a Borders

bookstore in Braintree, Massachusetts, and bought him a manual on pro-

gramming in C-H-, the language he would use to build Napster. On the
way home, thunder and lightning struck so fiercely that the two had to
pull off the road in the shelter of an underpass.

At the end of the summer of 1997, after the last of the Carnegie
Mellon crew had graduated and worked at least a few months at

Chess.net, the group scattered. Dakhnovsky went to Moscow, Aydar to

Michigan, and McBarron to Ohio. Aided by its promotion deal with

America Online, Chess.net membership had been doubling every year.

But the marketing went slowly; it was hard to convince the chess players

to pay for lessons or other premium offerings. And the management was
an obvious disaster. "I felt Uke we blew it," Aydar said. "I felt Uke John
had no clue, and I'd been taken for a ride."

Because he stuck to programming when he interned at Chess.net,

( 52 ) DOSEPH MENN
Shawn said, he never realized the depths of the problems at his uncle's

company. He had to have known some of it: He was close to the embit-

tered employees there, and once he rode his bike to deliver an overdue

paycheck to Larry Christiansen, one of the chess champions Fanning

hired to play games onUne. But business strategies and management
styles were never very interesting to Shawn. His focus was elsewhere.

When Shawn was around his uncle during Shawn's freshman year in
1998 and 1999, it was mainly to pour out code for Napster. "The dorm
was not conducive to work, so I would go back to the office, and then my
cousin would have to drive me back to school and drop me off," Shawn
said. "I started noticing my weekends would get longer and longer, and I

would have to drag myself back to school. And one day, for some strange

reason, I pulled up, and I think I had skipped a day where there was
something really important, like finishing up something or finding bugs."
It was January 1999, and his cousin Brian Fanning had just dropped
Shawn off for the week at Northeastern's campus. Shawn walked up to

his dorm's front door and stopped. Then he turned around and walked

back to his cousin's car. "I'm not going back," Shawn said. "You're crazy!"

Brian told him. Shawn shook his head. "I gotta finish this. I gotta pick."

Shawn was torn about the decision. If he had stayed in college, "I was

going to do 50 percent of two things, and I wouldn't have ever been

satisfied. So I just decided to go for it and left everything at the school

and didn't talk to any of my roommates. Because if I had talked to them,

they would have said, 'What are you doing, you're crazy,' and convinced
me to come back or made me feel bad about it. So I basically disappeared

for a few months. And then finally once I had launched it, and they saw
what I was doing, they felt a Httle better about it. I think they could tell I

was never happy— ^well, not not happy about school, but I never felt like I

was supposed to be there."

Shawn did tell some people of his move, including computer-science

professor Richard Rasala, who understood. "He felt strongly he had
something to do in the world and that simply remaining an undergradu-
ate was going to get in the way of that," Rasala said. Several of Shawn's
friends, including Loubani, did try to talk him out of quitting Northeast-

all the rave (53)

em. Hardest hit by the news was Shawn's mother, who broke down in

tears. All of her dreams for Shawn had been bound up in his graduating

college, something she had never done. "It was tough," Coleen said. "I

built this thing up about him going to college. He knew how disap-

pointed I was." She asked why he was the one who had to go, why it

couldn't be one of the other kids he was working with. But Shawn
explained that if he didn't do it now, and someone else came up with the
idea, he would always regret not having pursued it. Coleen fought back
her feelings and thought about what would be best for her son. "I told

him he should go with his gut," she said. Secretly, she was thinking, even
hoping, that Napster would last six months or so. Then Shawn could
come back and return to college.

John Fanning had a different reaction, one natural enough for an

ambitious businessman with tens of thousands of dollars in debts: He saw
his ticket to riches. As Shawn kept working on the system, Fanning told

him he would help with the business end. Fanning drew up papers incor-

porating Napster Inc. At first, Shawn was pleased: It was a sign that his

uncle believed in him, and that his project was becoming a reality. But
then Fanning told Shawn that he would be getting only 30 percent of the
company. John Fanning would keep the rest. Shawn was stunned. "Nap-

ster was his baby," Loubani said. "It was completely do or die." Fanning
told Shawn that the company needed an experienced businessman like

himself in charge, especially since when it came time to raise money,

investors would want Napster controlled by a capable executive like him-
self Besides, he said, when it came time to sell off part of the company to

new investors. Fanning would sell some of his shares, reducing his

percentage of the firm. Less emphasized was the obvious corollary: that
Fanning would be the first to get money out of the project to which his

nephew was devoting every waking hour.

It isn't unusual for an inventor, even one who starts with 100 percent
of a company's ownership, to end up with 20 percent or less by the time
of an initial public offering. Early investors and top executives are impor-

tant to the process and often have equal stakes by that point. What is

unusual, especially so early, is for more than half of a company to go to

someone who is merely providing management expertise, even if he is

world class —^which Fanning clearly was not.

( 54 ) JOSEPH MENN
 An interesting perspective on the matter comes from Shawn's mother.
First, John Fanning is her brother. Second, it was she who steered Shawn
to him. And third, she currently is making ends meet by cleaning Fan-
ning's house for pay. Even she leaves little doubt that both she and her
son were unhappy from the beginning about the split and what it led to.

"My main concern was that he have the proper people to guide him,"
Coleen said. "When there's so much money involved, there's going to be

people that don't have his best interest in mind. I would like to think that
what [John] really wanted was for Shawn succeed—^what he
to had really

in his mind, I don't know." As for Shawn, "he that—giving so

regrets

much control away," his mother said.

In May 1999, Shawn signed the paper that his uncle told him to sign.

At the gym one day with Loubani not long afterward, Shawn talked
about how he could get more of Napster back from his uncle. But he
didn't see a way. "He never forgot that it was his uncle that did this to

him," Loubani said. "From then on, the relationship became really

strained." Always guarded about personal matters, Shawn himself has

declined to criticize his uncle's actions in public. But there is unanimity in
Shawn's circle about his real feelings. "Shawn was upset, and he continues
to be upset" by the split, Jordan Ritter said. When Shawn told Sean
Parker about it, Parker couldn't beUeve it: "What did you sign, exacdy?"
Shawn said he didn't know. In the next two years, Parker and others won-
dered if Shawn had legally turned over the rights to his creation or not. In

private, Shawn and his uncle sparred, broke off contact, and eventually
made some kind of peace. When it comes to his uncle, "Shawn is like a

battered wife," said one former Napster official who knows both men
well, referring to Fanning's unchecked sway over Shawn. It's just too hard

emotionally for him to let go.

all the rave { SS )

 getting money

JOHN FANNING MAY HAVE SEWN UP 70 PERCENT OF THE

ownership of Napster, but he wasn't the only one seeing dollar signs. As
soon as Shawn Fanning had told his friend Sean Parker about Napster,
the wheels began turning in the nineteen-year-old's head as well. And
when Shawn said he was ready to move ahead, Parker sprang at the

chance. He tallied up the investor contacts he had made by networking

and simply hanging around the northern Virginia Internet scene. One of
his first calls was to Ben Lilienthal, whose server he had configured more
than a year earlier.

Lilienthal was a good man to know, and he was in a mood to listen.

He had grown up in nearby Reston and attended Amherst College in

Massachusetts, majoring in anthropology. Always interested in business,
Lilienthal returned to Virginia and worked eight months at a small con-
sulting firm, where he watched America Online and others in the area

( 57)
take off. "People were just awakening to the possibilities," he said. In

1996, Lilienthal founded Nascent Technologies to develop a Web-based

e-mail system. Nascent gained traction but was caught off guard when
Hotmail launched a similar Web system for free. Lilienthal defdy
switched gears and began working on a PC-based version, and the com-
pany recovered.
By 1999, at age twenty-six, Lilienthal had sold eighteen-employee
Nascent to CMGI, the Boston Internet holding company in the process

of spending billions of dollars acquiring everything from the AltaVista

search engine to the naming rights to the New England Patriots' football

stadium. He was looking for something new when the phone rang. "Sean
Parker called me up out of the blue and said, 'My friend and I are about
to launch a realty cool service for sharing online music,'" Lilienthal said.

When Parker asked Lilienthal if he would help, Lilienthal asked a few

more questions. He didn't get many answers. "You guys need a lot,"

Lilienthal told him. "You need a business plan, and you need investors."

Don't worry, Parker told him. "We're working on it."

Lilienthal was intrigued, and he wondered if he should sign up to run

Napster. "There was no question in my mind it was going to be huge,"

Lilienthal said. "There was just a question of was it going to be legiti-

mate." He soon called a college friend who had been one of his early
backers at Nascent, New York investor Jason Grosfeld, and told him what
he knew. Grosfeld had analyzed investments for Black Rock Financial
Management and then specialized in technology stakes for a hedge fund.
He had just started his own fund and was looking for ways to take advan-
tage of the trends toward broadband connections and increased desktop

processing power. If Lilienthal believed in Napster enough to run it and

everything else checked out, Grosfeld was willing to put up the seed
money as an angel investor. (Angel investors usually invest less than $1
million of their own money in early stage companies, while venture-

capital firms come in later and can put in tens of millions of doUars

supplied by pension funds, endowments, and wealthy individuals.)

Within a week, Lilienthal and Grosfeld arranged a visit to the Nap-
ster office in HuU. Lilienthal came over from Martha's Vineyard, where
he had been vacationing, and Grosfeld flew up from New York. A strange
scene greeted them. The offlce was in what appeared to be a dilapidated

( 58 ) 30SEPH MENN
former hotel on the wharf in Hull, which was itself not much to look at.

Fast-food containers littered the place. Next to the old hotel lobby sat
Tom Carmody, a former Reebok marketing executive who owned the

house next to John Fanning's. To the left sat Fanning, wearing black

Reeboks and pink Bermuda shorts. In the back was what appeared to be a
card table, where Shawn sat coding away on his laptop. The entire Nap-
ster brain was in that laptop, connected to the Net by a cable modem.
Lilienthal wasn't looking for much. Mainly, he wanted to make sure

that Shawn was a true hacker. Clearly, he was. Lilienthal's first impression

of Shawn's uncle was altogether different. "We're going to have to manage

you," he thought. Fanning knew he was on to something —more power to

him. But he was somehow overexuberant. Lilienthal and Grosfeld took

turns talking seriously with Shawn while the other occupied his uncle.

"We sat there and listened to how impressed this guy was with himself.
All I wanted to do was talk to the kid," Grosfeld said. When it was Gros-
feld's turn to set the pick. Fanning started peeling through a stack of
business cards on his desk, bragging about his contacts. Among the cards,

he said, were those of Steve Jurvetson, of the well-known Menlo Park

venture firm Draper Fisher Jurvetson, and Ben Rosen, the veteran ven-

ture capitalist who had founded Compaq Computer Corp., then the

world's largest PC company. Grosfeld smiled appreciatively. "If Ben

Rosen knows this putz, I'U eat my hat," he thought.

While Lilienthal and Grosfeld realized that Fanning was going to be

a problem, they both took to Shawn. "He seemed pretty bright, and he
had a nice way about him, an innocence," Grosfeld said. "I was looking

for bright people, and I was looking for a competitive advantage, or

something that had already gained such traction in the underground that
it sort of momentum of its own. I got an inkling of what was ger-
had a

minating." When the two men who might soon be running the company
asked about the legal issues, if Fanning had hired a lawyer, he brushed
them off. "My first question was, have you consulted a lawyer," Grosfeld
said. "They said no, but it's perfectly acceptable." Fanning turned on the
hard sell, telling the pair that Napster needed money quickly to keep the
momentum going.

Fanning seemed ecstatic about his new partners, at one point handing
Lilienthal options to buy shares in Napster Inc. The documents hadn't

all the rave (59)

been made effective, and they never would be. Lilienthal said he would

get the core Napster machine moved to a server farm and see about get-
ting venture funding. In the meantime, he and Grosfeld planned to
research the legal issues.

Lilienthal considered himself already on the Napster bandwagon, and

within weeks he called on an old colleague from Nascent to help design a
logo for Napster. Sam Hanks, twenty-seven, met Parker, Shawn, and

Fanning at a Herndon mall for lunch, and they explained how the service

worked. When Hanks asked about the reason for the Napster name,
Shawn didn't talk about his previous hairstyle. The group talked instead

about a cat napping, and Parker suggested a logo with a cat running
across a PC screen. Maybe a hip cat, a cat from the club scene. As Hanks
worked on it for a few days, he was thinking of younger users and was
probably influenced by the Japanese animation he had been watching.
Hanks emerged with a drawing of headphones on a face with catlike ears,

eyes, and a nose. At a second lunch he presented it, and the Napster crew
loved it. Hanks thought he was done. But Parker called a week or so

afterward, pointing out that the eyes and nose looked Hke a mustache and

goatee. "So I stuck in a Httle smirk," Hanks said. Not long afterward,

Parker called again. "Some of the venture-capital guys think it looks like

Satan," he said. Hanks asked what Napster users thought of it, and Parker
told him they loved it. "Well, who are you seUing it to?" Hanks asked,

exasperated. "The venture guys or the kids downloading the music?"

Parker decided the logo would stay. Later, he thought that the cat image
appropriately evoked stealth and thievery. Even more appropriately, he

realized, cats are risk-takers who escape death. The finished symbol

would rank among the most recognized symbols of a volatile new era.

Hanks had never negotiated a payment, and it took him months to col-
lect his due: $5,000, plus options that proved worthless.

Grosfeld and Lilienthal worked well as a team. Typically, Gros-

feld studied a business proposal in depth before committing money, while
Lilienthal was more intuitive, willing to risk some time as a manager on
something his gut told him was inspired. When both approaches led to
the same conclusion, they felt comfortable doing a deal. "We usually

( 60 ) JOSEPH MENN
came up between us with the right answer," Grosfeld said. Both were
excited about Napster, but their minds didn't meet on one issue. The
more-cautious Grosfeld wanted to cut a deal with Napster first, which
would establish what their stake would be, what role Lilienthal would
have at the company, and what would happen to both of those things if

venture money came in. At a minimum, they should set a commission for
bringing in venture funding if that meant they were forced out as a result.

But Lilienthal was fired up to act fast, and he thought he could trust the
venture investors he had in mind to do the right thing. "Let's get it done
as quickly as possible," Lilienthal told his partner. Later, he said Grosfeld
"ultimately had the right idea — cut a deal with them first." But securing
the commission wasn't as important for Lilienthal, since he didn't plan on
getting involved unless there were deeper pockets than Grosfeld 's.

Against Grosfeld's advice, Lilienthal called John Backus at Draper

Atlantic in Reston, Virginia. The small venture firm was the obvious

choice for several reasons. One, Draper's partners prided themselves on

moving quickly. Supportive quotes from entrepreneurs on the firm's web-
site included one praising it as a VC firm that moved "on Internet time."

A second reason was the firm's ties to SiUcon Valley, through the stake in
it held by the bigger venture firm Draper Fisher Jurvetson, backers of
Hotmail and Sierra Semiconductor Corp. Most important, Lilienthal
had earned Backus's trust. Backus had offered to fund Lilienthal's

Nascent, and LiUenthal had turned him down, saying that he was likely

to sell the company soon. That had spared Draper the hassle of a short-

term investment.
In three days, Parker put together an outline of Napster's plan, and
Lilienthal did minor editing. "The idea was, this was a user play," Lilien-

thal said. "We get as many people to use it as possible, then sell them
ancillary stuff like concert tickets and music. Let's go after 10 million
users. Then we'll figure out what to sell them." Parker and Lilienthal
went in to meet Backus and Draper Atlantic managing partner Jim
Lynch. "They loved it. They got it right away," Lilienthal said. The
Draper team said that there might be legal problems, and each side said

that it would study the issue before anyone committed to anything. But
once again, no one felt like waiting. After just a few days, a meeting was
set for the Draper men, Grosfeld and Lilienthal, Fanning, Shawn, and

all the rave (61)

Parker at Grosfeld's apartment a few blocks from the World Trade
Center.
Parker took the train up from Washington and waited with the angel
investors in the apartment. It was mid-July, and the temperature rose
above one hundred degrees outside. They sweated as they waited for the

venture capitaUsts, Lynch and Backus, who arrived late in their suits. The
air-conditioning couldn't keep pace with the heat, and Fanning and

Shawn still hadn't appeared, so the group adjourned to a gritty Irish bar

nearby called Brady's Tavern.

The Fannings arrived more than two hours late: John had insisted
that they drive down in style in a Z3 convertible with the top down and

Napster's server in the backseat. Trying to ignore the smell of stale beer at

Brady's, the men pushed together two tables in the back and ordered

chicken wings and soft drinks. After the pleasantries, Jim Lynch sur-
prised everyone but his partners. He whipped out a ready-made term

sheet, a page-long summary of how much the firm would invest in Nap-
ster and under what conditions. Grosfeld couldn't believe it. The venture

pros had moved even faster than he had. And now they were cutting him
and Lilienthal out of the deal. "They weren't honorable," Grosfeld said.

"They did something that I had never seen another investor do. They
tried to take aU of the action." He puUed his old friend aside. "You fuck-
ing idiot," he hissed at Lilienthal. "We didn't negotiate our commission."

Lilienthal looked abashed. "I didn't really think about it," he said. "I

thought they'd play square."

The saving grace, from their perspective, was that the term sheet
required Lilienthal to be Napster's CEO, which gave them some leverage
to negotiate their equity stake. And the deal was generous to a fault. It
called for Draper to put in $500,000 and take only a minority position in

the company. Fanning began hemming and hawing, saying it wasn't

enough money for the stake they wanted. For the second time in ten
minutes, Lilienthal was flabbergasted. "John, this is the most friendly

term sheet I've seen in two years," he said. Fanning said he'd think about
it, and the signals he gave turned positive. "I've got a bias for action," he
told Lynch, and as the meeting broke up, it looked like everything would
come together soon.

After the Draper team left, the rest of the crew went back to Gros-

( 62 ) JOSEPH MENN
feld's loft, and Shawn showed Lilienthal the new Star Wars movie trailer

on his laptop. Shawn and Fanning headed back to Boston, and Grosfeld
and Lilienthal took Parker out for a celebration dinner at one of the fan-
ciest restaurants Parker had ever seen, the chic Bouley. After staying the
night at Grosfeld's, Lilienthal decided to treat Parker to his first plane
trip, the shuttle flight back to Washington. Napster's server was going

with them, destined for housing at Global Center's facilities in Virginia.

On the way to the airport, Parker realized he had forgotten the inhaler
for his asthma. Since he didn't want to make Lilienthal late, he decided
he could make do without it. The two men missed the first plane they
tried for, ran to the adjacent terminal, and missed the second plane. By
the time they made it back to the first terminal, Parker was getting ner-
vous about not having his inhaler, especially after aU the running. Hoping
that enough caffeine would open up his lungs, Parker slugged six shots of
espresso as Lilienthal watched in disbelief. Out of the corner of his eye,
Lilienthal saw a newspaper headline: The record industry had announced
another step in what it called the Secure Digital Music Initiative, to

encrypt music that wasn't in the MPS format. "Too late," Lilienthal
thought.
Finally on board a shuttle and taxiing down the runway with the
Napster server in an overhead bin, Parker asked a stewardess if she had an
inhaler. He didn't realize that the airlines have strict rules about asthmat-

ics, since the air gets thinner at high altitudes. The stewardess ordered the
plane to return to the terminal and told Parker to get off. Lilienthal lent

the teenager $20 for cab fare to get back to Grosfeld's for the inhaler. As
the plane finally lifted off with Lilienthal and the server, the entrepreneur

shook his head and reconsidered Sean Parker. "Here's a kid who doesn't

have any shares in the company," he thought. "But he has been responsi-
ble for all the things that have been happening. Now he's going to take on
the recording industry. And he doesn't know how to fly on a plane."

With Fanning amenable to the Draper Atlantic term sheet, all that

remained was for Draper, Grosfeld, and Lilienthal to do their "due dili-

gence." The phrase, something of a hoUow one during the Internet

bubble, comes from the legal responsibility of the parties to a deal to

alltherave (63)
conduct a reasonable investigation beforehand if they want to preserve

the right to claim later that they were misled. In Napster's case, the due
diligence proved to be anything but routine. A credit check turned up the
first of Fanning's two major overdue debts. The assault charge emerged as

well. Though they troubled Lihenthal, neither item was a deal breaker for
him. The bigger problem was U.S. copyright law. Grosfeld spent most of

two months getting deeper and deeper into the state of the law and the
prognosis for Napster. He hired the law firm of Weil, Gotshal & Manges
to research the newly passed Digital Millennium Copyright Act and read
the court rulings that would later prove crucial to Napster's chances for
survival, ruhngs that had arisen from topics as diverse as VCRs and flea

markets.
The outlook was not good.
In 1998, spurred by fears that the Internet had enabled both mass
instantaneous copying of intellectual property and perfection in the qual-
ity of those copies, Congress had passed the Digital Millennium act. The
law extended existing copyright protections into cyberspace. And it made
it a felony to circumvent technical measures that protected copyrighted

material, or to distribute programs whose primary purpose was to crack

those measures. After intense debate, the law also included some excep-
tions designed to translate some of the balances of existing copyright law
into the digital era. Among those balances were the fair-use doctrine,
which allows critics to quote passages of a book or an article, and protec-
tion for libraries and their equivalents, which allow the public to peruse

published work. And the law codified what had been worked out in some
court cases, including one in which the Church of Scientology had sued
not just disaffected church members who had published the church's
sacred —and copyrighted—teachings on the Internet, but also the Inter-

net service provider that had allowed them to do it.

The judge in the Scientology case had ruled that if the Internet

service provider did not monitor what its users did, it was acting like a

phone company, and therefore shouldn't be held responsible for what

customers said to each other. The Internet provider was more like a
library than a publishing house. As long as it responded to complaints by
the copyright holder after the fact, it couldn't be liable for the content.

Following that ruling, the DMCA gave explicit protection to Internet

( 64 ) JOSEPH MENN
service providers that merely routed offending material, as long as that

transmission was part of "an automatic technical process without selection

of the material"; that the service provider didn't select the recipients of the
material "except as an automatic response to the request of another per-

son"; and that no copy of the material was maintained on the system in a

way that left it available to anyone other than the intended recipient.

Another "safe harbor" was given to Internet service providers that

listed hypertext links or otherwise indexed offending material. In order to

qualify for that protection, the service provider had to be unaware that
the material was infringing a copyright. The company couldn't have

"actual knowledge," or be aware "of facts or circumstances from which

infringing activity is apparent." Once it became aware, it would have to

act to disable access to the material. In addition, the company couldn't

benefit financially from infringing activity if it controlled that activity.

Two other cases came up in Grosfeld's research. One was the 1984

U.S. Supreme Court ruling that narrowly allowed videocassette recorders

to enter the market after an eight-year legal struggle between Sony and
Universal City Studios. A bare 5-4 majority of the court held that even
though Sony's VCRs could be used to copy protected television programs
and that those copies could be sold, unfairly diluting the profits of the
program's owner, a "substantial" use of the machines would be for an
innocent purpose: taping a program now for viewing later, with the ability

to temporarily halt viewing while answering the door for the pizza deliv-

ery boy. "There is no precedent for imposing vicarious liability on the

theory that petitioners sold [VCRs] with constructive knowledge that
their customers might use the equipment to make unauthorized copies of
copyrighted material," the court had written. "The sale of copying equip-
ment, like the sale of other articles of commerce, does not constitute
contributory infringement if the product is widely used for legitimate,
unobjectionable purposes, or indeed is merely capable of substantial
noninfringing uses."
Napster could, and would, argue that it was providing a similar tech-

nology, with substantial noninfringing use. But Grosfeld saw that it

would be a harder argument than it was for VCR-maker Sony, judging by

the way people were already using the Napster service. In theory, some
people could use Napster to transmit their own home-studio recordings.

all the rave (65)

And there were plenty of older songs available that were no longer pro-
tected by copyright. It was just that most people were not actually using

Napster that way, and they never would. And unlike Sony, which lost

contact with its customers after they bought the VCRs, Napster kept
watching exactly what its customers were doing.
The fact that one more case turned up at all is testament to the thor-

oughness of Grosfeld's research. Fonovisa Inc. v. Cherry Auction Inc. had

been filed in 1993, when a Latin music company accused a Fresno flea

market of improperly renting booths to vendors selling counterfeit

recordings. Fonovisa argued that Cherry Auction was aiding and abetting
those vendors' copyright infringement. The flea market claimed it had no
responsibility to supervise what the little retailers were doing, and a fed-
eral judge agreed, tossing the case out of court. In 1996, however, a panel
of the San Francisco-based U.S. Court of Appeals for the Ninth Circuit
reversed that decision. Since the police had told the flea market's owners

what was going on, the flea market knew about it. And it was improperly
profiting by charging admission and selling concessions, the court found.

The common threads in the DMCA and the court cases were knowl-
edge of wrongdoing and the ability to stop it. And that's what made
Grosfeld nervous. Unlike the DMCA-protected Internet service provider

that doesn't know who is posting what, Napster always knew who had
what file and to whom they were transmitting it. And a claim that Nap-
ster was just "indexing" who had which songs, which might qualify it for

the second DMCA safe harbor, wouldn't work if Napster got complaints
about a given song file. The company would have to remove it, although
another version of the same song was sure to pop up in no time.
The more Grosfeld thought about what was actually happening
inside Napster, the worse it looked. Not only were the employees aware of
"facts and circumstances" suggesting copyright infringement, by itself

enough to ruin the second safe harbor, they were aware of the infringe-
ment itself Napster's few workers "weren't anything like a service

provider," Grosfeld concluded. "They were not in reality closing their eyes

to the copyright infringement going on there —they bragged about it. My

lawyer thought it was insane."
Contrary to Napster's later depiction of its founders as a couple of
bright but naive kids, Shawn and Parker knew early on that they were

( 66 ) JOSEPH MENN
pushing the legal envelope. Shawn just didn't think they'd get sued.
Parker did, but he thought Napster had legal arguments that would be at
least good enough to buy time until the industry opted to settle. "We
understood where it was going to go. It was premeditated," Parker said.

The game plan made Grosfeld very uncomfortable. And as for making
money ahead of a record-industry deal, the law stressed the dangers of
profiting from the wrongful behavior of others. Finally, avoiding that pit-

fall by avoiding profit didn't exactly strike Grosfeld as a solid business

model. "If they profited, they were profiting from theft," he said. "We live

in America, and that's punishable."

John Fanning, also well aware of the legal hurdles, was doing his
own research. He called Andrew Bridges, a partner at the top law firm in
SiHcon VaUey, Wilson Sonsini Goodrich & Rosati. Bridges might have

been the best single person to caU. An expert in intellectual property and

cyberspace with a law degree from Harvard, Bridges was defending

Diamond Multimedia Systems Inc., the maker of the Rio portable MPS
player, which had been sued by the Recording Industry Association of
America on copyright grounds. Bridges won that case, which extended
the Sony VCR decision to new devices. But he told Fanning that he
wasn't interested in representing Napster. Instead, Bridges referred Fan-

ning to a lawyer named Bruce Joseph. Joseph begged off as well, sending
Fanning to Washington lawyer Seth Greenstein. Greenstein took Fan-
ning's call, and the two chatted. As Fanning described how the service

worked, Greenstein said it sounded like search engine Lycos's music

service "on steroids." Fanning put the phone down and passed the com-
pliment on to Shawn. Both laughed. At last —someone who got it.

Greenstein had worked for a number of Internet music companies,

including RealNetworks Inc. of Seattle, and in 1998 he had cofounded

the Digital Media Association and testified before Congress. Greenstein
said he would be willing to help develop a legal rationale for Napster.

Since his firm also represented some record companies, however, he said
he might not be available for any litigation to come. Parker soon went to
visit Greenstein in his office at McDermott, Will &. Emery. Parker had
never been in a law office before, and he was cowed by the posh trappings

all the rave (67)

and towering ceilings in the conference room. Parker looked hopelessly
uncomfortable in his suit and tie. "I said about five words and handed
him a check," Parker said.

With the retainer, Greenstein drafted a twenty-seven-page memo

spelling out what Napster's arguments should be. In what would become
an almost-bibhcal text for Napster's inexperienced leaders, he revisited
the cases Grosfeld had, pointing out a number of defenses. First, he said
that in the flea-market case and others, courts had ruled that the compa-
nies were aiding infringement when they had direct knowledge of what
was happening, Napster, on the other hand, could argue that since the
files being sought by its users were not marked either as copyrighted or
otherwise, it didn't know what was in violation. "When you look at cases
that impose contributory or vicarious UabiUty in the case of a service, it's

because in those cases the defendant was actually able to exercise present
control," Greenstein said. "For example, someone says, 'Make a copy' and
hands a tape to someone to duplicate. That person is liable because they
could see if it was suspicious. When you're looking at a service that con-
sists of an automatic, technical process, that's quite different." In his
memo, Greenstein wrote: "MPS lacks any flags or other means that indi-
cate whether copyright has been asserted over the music file and whether
the music file may be copied with or without restriction."
Fanning would trot out Greenstein to explain the legal defenses,
often by phone, for Draper Atlantic and other potential investors. But he
didn't brag about two other points that Greenstein said he made orally.

The first was that, as Greenstein saw it, the odds of a lawsuit being filed
against Napster were about 98 percent. The second was that copyright
law is a complex animal, especially when it comes to issues on the edge.
Those are "the grayest of the gray areas in the law," Greenstein said.

Sampling of older songs in rap music was one such battleground, a fight
between fair use and infringement. The significance of the trend for Nap-
ster was that the eventual lawsuit was bound to be what lawyers call "fact-

intensive." The ultimate ruUng would almost certainly turn on Napster's

internal conduct, the evidence produced from within about what it knew,
what it should have known, and what it could have done about it. For
instance, a court might inquire whether Napster's servers had the ability

( 68 ) JOSEPH MENN
to check each file for some sign of copyright violation, such as the

acoustic "watermarks" being developed by the industry.

A major warning in Greenstein's memo concerned the DMCA safe

harbors for service providers. Napster's chances would rise dramatically if

it could qualify for one, but it was far from clear that it could, Greenstein

said. Companies that ignored obvious misuse wouldn't make the cut.

"Napster should be able to meet the test for immunity from liability, but
it is not a foregone conclusion," he wrote. "The knowledge standard
required by this section is a 'red flag' of facts and circumstances from
which it is apparent that infringing activity is occurring. In this case, the

RIAA might contend that the red flag consists of thousands of MP3 files

that were ripped from commercially available compact discs being made
available through the Napster network. . . . This is the closest of questions

presented in the memorandum." Greenstein concluded by recommending

that Napster appoint a copyright agent, post a policy to ban users who
infringed, and act on that policy.

But Greenstein hadn't been hired as a general counsel, someone who

would work full-time at the company and monitor its behavior. He was
hired only to provide an interpretation of the law that could allow Nap-
ster to win if sued. And while Greenstein believed in what he had writ-
ten, he conceded that his counterparts in the record industry "probably
see me as a wild-eyed radical."

Grosfeld, in the meantime, kept visiting his friend Lilienthal's office

in Washington and calling other intellectual-property lawyers. They

didn't find many that shared Greenstein's qualified optimism. So Grosfeld
and Lilienthal started kicking around new ideas for harnessing Napster's

system. The technology itself was legal and a huge advance over what had
gone before. Perhaps, they thought, the company should just stick with

that, and license the file-swapping technique to others. The possibilities

seemed real enough, but the men decided that they couldn't trust John
Fanning to follow them down that road.
"If it was just the legal issue, that would have been okay," Lilienthal

said. But the combination of that minefield with Fanning's behavior was

all the rave (69)

too much risk. Lilienthal decided that if he were going to try to steer

Napster out of its legal predicament, he would need to make sure Fan-
ning was not in majority control, with veto power over anything Lilien-
thal might do. And so began weeks of tortured negotiations during the
summer of 1999 as Lilienthal and Grosfeld offered Fanning more and
more money, finally more than $1 million, to whittle his stake in Napster

down to about a third.

If they had succeeded in cutting a deal with Fanning, things might

have turned out differently. Lilienthal and Draper Atlantic both thought
the legal issues could have been managed, perhaps even if Napster had
stayed in the music-distribution business. "We were going to run this

thing and then go to the record industry and cut a deal," Lilienthal said.
"One side of me thinks the record industry was out to shut everything

down. Then part of me thinks that at a certain point in the process, they
would have been willing to cut a deal. I would like to think I would have
been able to pull something off."

As the negotiations between Grosfeld, Lilienthal, and Fanning

dragged on, Grosfeld pursued another angle as well — extracting Shawn
from Napster Inc. Some lawyers Grosfeld spoke to believed that Shawn
wasn't legally bound to give his invention to the company because of the
haphazard way in which it had been formed. "He's killing you," Grosfeld

told Shawn on one call. "You can start over." Grosfeld even looked for
apartments where Shawn might live in Manhattan, away from his uncle's

influence. Parker joined the debate, making similar arguments to his

friend about the damage Fanning was doing to their cause, but he got

nowhere. Shawn explained that his uncle had helped him when no one
else would, that he had given him that first computer. "Shawn had an
emotional attachment to him. He was the only real father figure," Parker

concluded.
So the investors' talks with Fanning continued. At times, it seemed
like Fanning had agreed to an offer, or nearly had. They got as close as

two percentage points apart on what Fanning's remaining equity would

be. Then, without warning. Fanning would turn into a car salesman.

"How much do you have?" he asked Grosfeld at one point. "How much
could you wire me today?" Fanning also tried to drive a wedge between

( 70 ) JOSEPH MENN
Grosfeld and Lilienthal, telling each that he wanted him involved more
than he wanted the other. The pair ultimately realized that Fanning
would never sign. "He was just negotiating for the sake of negotiating,"
Lihenthal said. Finally, Grosfeld and LiUenthal threw up their hands.
Grosfeld moved on to investigate other possible investments, and Lilien-
thal went on a surfing trip to Peru.

Napster kept adding more users and more music. A few hundred
users became a few thousand, then ten thousand, then fifty thousand.

Cash at Napster was tight, but Fanning didn't seem worried. He had
plenty of other angles to play. He returned to Draper and said he needed
at least some money right away if the firm was still interested. Spooked
by Fanning's background, the legal worries, and the continuing lack of a
proven CEO, Draper agreed to give Napster only a $50,000 loan. In
return. Draper got the future right to buy more than 1 million shares, or

about 10 percent of the company, at 20 cents apiece, which was the price

then being bandied about with other investors.

Fanning went after more of Parker's connections as well, some of
whom Parker knew through his UUNet guru, Jonathon PerreUi. One of

those men was Scott NewHn, who had little technology background but
had done well for himself as president of Sparks Personnel Services, a
temporary-employment agency in Maryland. Newlin agreed to meet with
Parker and John and Shawn Fanning to hear about Napster. Parker didn't

say much at the meeting, but Shawn impressed Newlin by speaking pas-
sionately about the project while sporting a T-shirt and shorts. "Shawn is
a very nice guy, just a natural kid," Newlin said later. The problem was
that John Fanning would barely let his nephew talk. Fanning "did aU the
speaking, and I just felt it was too much of a control issue. It seemed like

to him, it was a quick in, quick out. He just wanted to sell it quickly."

Newlin decided to pass on the deal for that reason. Some time later, he
and Perrelli talked about making a $1.2 million offer for the company
that would leave them in charge. But in a replay of the stalemate with
Grosfeld and LiHenthal, Fanning said he wouldn't give up majority con-
trol. "What makes you think you should have majority control when

all the rave (71)

you're not going to be the CEO and you didn't put money in?" Newlin
asked. "That's the way it is," Fanning told him. "I just said, 'I'm not going

to waste my time,'" NewHn recalled.

Possibly the best choice of all for Napster would have been another
Parker-PerreUi connection, engineers Scott and Mike Shinn. The Shinns
were northern Virginia brothers in their late twenties who always worked

as a team, from their internship at the White House, where they were in

the same orientation group as Monica Lewinsl^^, to the U.S. Securities

and Exchange Commission, where they worked on the well-regarded

EDGAR system for putting SEC documents online. The Shinns began
with the same sort of hacker/security background as Jordan Ritter, but

they reached a bigger league at a company called WheelGroup Corp.,

based in San Antonio. WheelGroup gained widespread attention in early

1997, when it appeared on the cover oi Fortune.

The magazine had heard WheelGroup executives boasting that its

white-hat hackers could break into any corporate system in a day, then
teach the company how to protect itself To test the claim. Fortune found

a large New York company that was proud of its computer security and
that agreed to serve as a guinea pig as long as it was never identified and
an auditor made sure secrets weren't stolen. The magazine then chroni-

cled how WheelGroup's employees, many of them former information-

warfare specialists for the government, used public data about the
company's network structure and a wardialer program like that released

by wOOwOO's Matt Conover to go around the company's $25,000 firewall.

WheelGroup got in through a fax server and then broke into the com-
pany's tax department, where an employee had a popular remote-access

program running on his computer. As a crowning touch, the hackers sent

an e-mail to a division president that appeared to come from his deputy,
suggesting a $5,000 bonus for the employee who had approved the
WheelGroup project.

Basking in the publicity, WheelGroup was bought the next year by

Cisco Systems for $124 miUion, making millionaires out of many of the
firm's seventy-five employees, including the brothers Shinn. Cisco, the
largest maker of networking gear, was pressuring the Shinns to abandon
Virginia for San Antonio, and the brothers were looking for an excuse

not to move. They knew Perrelli from UUNet's interactions with Cisco,

( 72 ) JOSEPH MENN
and when Perrelli and Parker told them about Napster, they were recep-
tive. They also knew something about digital music: Scott had decided he
liked MP3s but had run into availability problems. Like Shawn, Scott
had done something about it. He knocked out a program to search for

MP3 files automatically and bring them back to his home computer. The
big drawback was that the program didn't discriminate, and Scott didn't
hke most of what it came back with.
In June 1999, Parker brought Shawn and John Fanning to meet the
Shinns in their basement in Centreville, Virginia. "I knew nothing about

them," Scott said later. "Parker said, 'I got these guys I want you to

meet.'" Scott agreed because he was curious and because the potential for

a big payoff in digital music was increasingly obvious. America Online,

the Internet-access behemoth based a few miles away, had just plunked
down a total of $400 million for Internet-radio firm Spinner Networks
Inc. and for Nullsoft, the small maker of MPS player Winamp run by

Justin Frankel and Rob Lord. That kind of money would certainly be
enough to justify blowing off Cisco and staying close to home. The
Shinns hit it off immediately with Shawn and Parker. As they talked,

Scott mentioned that he had hosted Internet bulletin boards on a local

digital-art network called Ice.org, on which Parker had chatted five years

earlier as a precocious teen. And without knowing Shawn's real name, the
Shinns had run into him as well, on IRC channels covering security
issues. (Later, when Scott discovered that Ritter was involved at Napster,

he had another small-world moment: He knew of Ritter by his reputation

as a security expert and server architect.) Finally, Scott had heard about
Shawn and Parker, again only by their IRC handles, after they had duped
a friend of his who was unwisely running a multiuser game from his U.S.
State Department computer. "They schooled my friend, who is pretty

bright," Scott said.

"Do you like MP3s?" Shawn asked. "Yeah," Scott said, "check this

out." Scott showed him the search-and-retrieval program, or "bot," and

Shawn showed Scott Napster. Scott's first reaction was that it took too
much work: You had to type in the name of the song you were looking

for. But the idea was "pretty cool," he told Shawn. "I need to marry it to

my bot." For half an hour, Shawn and the Shinns had a Vulcan mind
meld. "We kind of geeked out on how it worked," Scott said. "I had seen

all the rave (73)

some not quite peer-to-peer models, but something similar in IRC, with-
out the searching. We talked about how to optimize it." By the end of the
meeting, Scott decided he had heard enough. "This is the next logical

step," he thought. "This is going to catch on big time." Just like that, the

Shinns decided to quit Cisco and work for Napster.

The Shinns had $1.2 million to invest from the WheelGroup
takeover, and John Fanning wanted it. But in the discussions over what
their role at Napster would be, the Shinns grew concerned about John
Fanning's outsize stake in the firm. "Mike and I said, 'This capital struc-

ture is kind of weird. Do you want to redo it?' and John Fanning said no,"
Scott said. "We were not convinced it was going to work, so we bowed
out." The Shinns kept talking to Shawn, but in July 1999 they formed
their own firm, along with Parker and Perrelli, to develop other music

technology. ETantrum, as the firm was called, refined Scott's MP3-

hunting bot and added a recommendation tool that analyzed the music
that a computer user was listening to on his MP3 player. The bot would
then go out and find similar songs. "We were always like technology
cousins," Scott said of eTantrum and Napster. "What we were evolving
into was the realistic business half of Napster."

ETantrum and Napster compared notes often, but the most dramatic

moment in the two firms' relationship came later that summer. That's
when the Shinns decided that Shawn alone was worth their million dol-
lars, as long as he came without John Fanning. "We didn't want the uncle.

We just wanted Shawn," Scott said. While Scott was chatting to Shawn
over IRC, Mike called him on the phone. "I've got a million dollars," Mike

told him. "I'U give you a million dollars if you come work for us." The

phone went silent on Shawn's end as he tried to digest the offer and looked
around for his uncle. "I have to call you back," Shawn said. Minutes later,

he messaged Scott, worried that eTantrum would start its own peer-to-

peer system. "Dude, you're not doing what we're doing, are you?" Scott told
him no, and it was true. Besides wanting to avoid direct competition with
their friends at Napster, the Shinns believed the record industry would
soon be screaming for blood. They thought it would be safer if they worked

on the recommendation service and incorporated a way to buy music. They

would still have to make some kind of a bargain with the RIAA, they felt,

but they wouldn't have to give away as much when they did.

( 74 ) JOSEPH MENN
 Shawn didn't take the Shinns up on their offer. As eTantrum slowly

evolved, even attracting acquisition interest from CMGI, the computer-

security job offers were "falling out of the sky," Scott said, with hourly pay

that could add up to $12,000 a week. The Shinns returned to anti-

hacking work. Like the good geeks they were, instead of pulling the plug
on eTantrum, they open-sourced the software and allowed others to

adopt it.

Given what John Fanning had, which was 70 percent of Napster Inc.,

and what he thought he had, which was control of a company worth far

more than what he was being offered, one can understand why he
declined overtures from Grosfeld and Lilienthal, Newlin, and the Shinns.
The harder thing to comprehend is why eighteen-year-old Shawn would
turn down an offer from technically superior teams that would have net-
ted him "a million dollars and a monster truck," as he laughingly
described it later with a hacker inside joke: That's the nonnegotiable fee
that hacking collective Cult of the Dead Cow demanded for handing
over an advance version of its powerful Trojan-horse attack program,
Back Orifice 2000.

It wasn't clear that Shawn himself understood why he had done so.
"One, I didn't take them that seriously. Two, I didn't really know much
about starting a business, and even at this stage we weren't really thinking

about it. Three, my uncle was family. So I didn't. I mean, it could have

been that I was just so out of it from working on the code that I didn't

even want to think about it, even though those are kind of crazy numbers.
But most of that period of time was a blur, and I just went for what felt

comfortable and what felt right, and none of those felt right —the idea of

taking a bunch of money and moving somewhere, even though I'd never

seen close to that amount of money. ... I can't even think of the thought

process that I went through when stuff like that happened," Shawn said.

"I wonder what would have happened if we had done that. I don't know.
There are just too many variables."

John Fanning continued his ceaseless quest for money on his terms,

turning for help to his neighbor and adviser, former sneaker marketing
executive Tom Carmody. And one of Carmody's connections seemed like

all the rave (75)

a match made in heaven. Andy Evans was a San Francisco venture capi-
talist vi^ho was starting an incubator called Zero.net to nurture emerging
companies. He was smart as hell, and his own connections could be

summed up this way: He had managed money for Bill Gates, the richest

man and one of the shrewdest businessmen in the world. Fanning, Car-

mody, Shawn, and Parker flew out to meet him in August 1999. It was
the first trip to San Francisco for both teenagers, and they were in awe of
nearly everything. "I was really excited. We were showing [Napster] to
somebody who might be putting money into the company and help us

buy servers," Shawn said. Evans's office was low-key, in the new-media
style of the day. Evans himself was much less low-key. He bragged about
running Gates's investments in the mid-1980s and about his multiple
Ferraris. "Miraculously," Shawn said, the Napster demonstration went
smoothly. Beyond that, he said, "I had no idea what was going on. It was
a weird experience." Evans heard the Napster pitch, and suddenly he was
thinking several steps ahead. Of course Evans would hand the company,
he said, but then he might want to set up an alliance with another small
firm that did market testing of new musical groups. After that, Napster
could approach the record companies about an alliance.
Evans was so excited that he insisted that Shawn and Parker stay in
California at a hotel he would pay for. He would wire investment money
the next day. Fanning and Carmody, Evans said, could return east. The
gambit sent up all kinds of warning flags for Fanning, who vetoed the
idea. Even the deal-hungry Parker agreed. "There was something not
right about him," he said. And Evans had misread Shawn. When it

became clear that the Napster crew was going to head home that night,

Evans called for a stretch limo to take Shawn to the airport. At that

point, such conspicuous consumption only embarrassed Shawn and made

him uncomfortable.
Evans still might have invested in Napster were it not for Jordan Rit-
ter. Evans wanted to learn so much about the company that he asked to

speak with the guy administering the back end. The Fannings called Hit-

ter at his office at Bind View and told him that Evans would be phoning
and to answer his questions. But they neglected to tell Ritter that Evans
was debating whether to invest. Ritter, thinking that Evans had already
invested or was otherwise in the fold, held nothing back.

( 76 ) JOSEPH MENN
 When Evans called, "he didn't misrepresent himself. He just didn't

represent himself" as having any particular role, Ritter said. Evans asked

who was running the server. Ritter said he was. Evans asked how stable it

was. Ritter said it crashed every ten or twenty minutes. Evans asked how
long it would take to get the server to be reliable. Ritter said a month at

best, three months at worst. Evans asked how much Ritter was getting
paid. Ritter told him zero, for the moment, and Evans laughed. (Fanning
soon ordered paychecks sent to Ritter.) Evans called Fanning and used
everything negative that Ritter had said for negotiating leverage, and the
talks quickly collapsed.

Much of Napster's early life was marked by seasoned investors or

managers looking closely at the company, consulting their lawyers, their
common sense, or both, and walking away from temptation. A number of
them might have set the young company on a different and viable path if

John Fanning had Andy Evans, on the other hand, was some-
let them.
thing completely different. His may be the single instance of an investor
who actually could have made Napster's fantastic but doomed campaign
into something even worse.

That day at Zero.net, Evans had talked a lot about Gates, who had
served on the board of Evans's investment company and was godfather to

his three children. What Evans did not talk about was his 1986 convic-
tion for bank fraud. When, in 1993, questions about why Gates was rely-

ing on a felon for financial advice became too frequent. Gates broke most
of his official ties. But by 1999, Evans was clearly a player in Silicon

VaUey, investing alongside the top venture firm Kleiner Perkins Caufield
8c Byers in such monster start-ups as Rambus Inc. and getting IPO
shares from the top investment banks, Goldman Sachs and Morgan
Stanley. Evans started Zero.net in May 1999, and one of its first invest-

ments was in discount perfiime seller Perfiimania's Internet division,

which was spun off that September. One of Evans's investment firms
bought a majority of the spin-off's shares. As the prices of the shares rose

on the constricted supply, Evans's firm transferred them to Zero.net, fat-

tening Zero.net 's balance sheet and allowing the incubator to raise more
venture capital. Lawsuits soon accused Evans of manipulating the stock
and failing to make required disclosures to the SEC. The suits echoed
previous accusations leveled at Evans, when he had been forced to sign a

all the rave (77)

consent decree promising not to violate securities laws. And Evans's

criminal past caused a major Zero.net investor to pull back $20 million it

had pledged, leaving the firm with a negative net worth. More than
twenty complaints were filed with the SEC about Evans affiliates, and the
agency was still reported to be investigating two years later. Following its

custom, the SEC declined to comment on Evans.

While much of the Internet boom can be characterized by an alarm-
ing lack of research by private and public investors into the companies
they backed, including Napster, the Andy Evans case shows why due dili-

gence is supposed to work the other way as well. Especially in the early

stages of a company's life, entrepreneurs have a responsibility to check out

their backers and act accordingly. It was too late for Shawn to do so with
his uncle. But it wasn't too late to do that with Evans. If Ritter had been

less accidentally candid, Napster might have wound up a piece of Evans's

then-growing empire of penny stocks and alleged massive self-dealing.

Evans's interest, however, did lead to Napster finally sealing a deal

with its first real outside investor, a man who would be crucial to its des-

tiny. That investor, Yosi Amram, sat in on the talks at Zero.net at the

invitation of his old acquaintance, John Fanning. Amram saw that Evans
was wiUing to invest even though Fanning was a problem. And Amram
decided that if someone of Evans's apparent pedigree was willing to take a
risk, he might do so as weU. "I could see it was going to take off. I liked

the idea, and it was getting some traction," Amram said. What he did not

do was do anything approaching the due diligence put in by Draper

Atlantic and Grosfeld and Lilienthal. He didn't even read Seth Green-
stein's legal memorandum. Instead, he recalled. Fanning described it to

him, and he spoke to a laAvyer on the phone, though he didn't recall

which one. "I made a quick decision," Amram said.

More Amram made a quick decision that reversed his

accurately,

earlier, more thoughtful one. He said no at first because he didn't trust

Fanning with his money. "I was very reluctant," Amram said. He had one
hundred thousand reasons to be skeptical — that's how many dollars he
had plowed into Chess.net. By mid- 1999, Amram knew he wasn't going
to be getting any of them back.

( 78 ) DOSEPH MENN
 Fanning had met Amram years earlier in Cambridge, playing chess in
Harvard Square at the tables outside the Au Bon Pain cafe. Fanning
loved all kinds of chess, often playing multiple games simultaneously.
Amram favored blitz, a kind of lightning-quick chess in which each side
is allotted a total of about five minutes for all its moves. In blitz, the regu-

lar rules of chess can be broken, as long as the player doesn't get caught
before the next move. "You have to make quick decisions," Amram said in

explaining his taste for the game. "To me, it's like the real world. Time is

a fundamental part of life

— ^you can't take time off to go and think about
it." Most people probably don't see their lives as being quite so rapid-fire.

But if there is a more exact metaphor than blitz chess for Silicon Valley in

1999, it hasn't been made public. And like the Valley's soon-to-be-
obvious missteps in that period, Amram had already been tripped up by
his penchant for the quick-as-a-blink deal.

Overall, Amram had been very successful. His worldview was part of
what made him a strong investor; he also had serious smarts, a real tech-

nical education, and a wealth of contacts. Raised in Tel Aviv, the son of a

chief financial officer and a schoolteacher, Amram did his three years of

universal military service in the Israeli Air Force in the late 1970s. He
rose quickly to the rank of sergeant major. Amram wanted to be involved

in technology and to be an entrepreneur, and he headed to MIT in Cam-

bridge, where he earned a bachelor's and a master's degree in electrical

engineering and computer science in four years. Amram said he recorded

a straight-A average at MIT, and those who know him don't doubt it.

Deciding he liked business better than engineering, Amram went to

Harvard Business School, graduating in the top tenth of his class in 1984.

Amram's first job after business school was in product marketing at

Rational Software Corp. in Cupertino, California, where he held a variety
of positions over three years. Returning to Boston so his wife could accept
a professorship at Boston University, Amram set up shop at a venture

fund, pursuing possible investments and trying to see if he could come up

with his own idea that the firm's partners would back. The idea came to

Amram soon, though the partners' flmding did not. Amram went ahead
anyway, founding Individual Inc. in his Boston bedroom in 1989. "I went
about nine months without a salary, living off my savings, before the first

angel investor came in," Amram said.

all the rave (79)

 Individual was based on one of the big ideas of that era, the same one
that later inspired Parker's high school science-fair project: smart agents.

At the time, before the World Wide Web, there was a vast amount of
information on the Internet that people had neither the time nor the
ability to find for themselves. Individual went out and located informa-
tion that would be useful to people or companies and delivered it to them
by fax and e-mail. Individual did well, and in 1996, the year after

Netscape's watershed initial pubhc offering opened the way for Internet

companies. Individual filed for its own $200 million IPO. By that year,
the news-retrieval service, later known as NewsEdge Corp., had 200
employees, 138,000 subscribers, and more than $50 million in cumulative
losses. It also had $16 million in rapidly growing revenue and significant

investments from Microsoft, newspaper chain Knight- Ridder Inc., and

the venture firm Kleiner Perkins.
Acutely conscious of the power of trend thinking in the Valley and on
Wall Street, Amram developed Individual's products but also acquired
companies that sounded hot. One of those companies was Freeloader, the
firm at which Sean Parker worked as an intern. Freeloader had been
founded the previous year in Georgetown by a young Wall Streeter
named Mark Pincus and by an America Online engineer named Sunil

Paul. After querying strangers in a local bar, the duo decided people

would value software that surfed the Internet on its own while the com-

puter user was away. In a restaurant, one of the founders overheard

another young man spinning business ideas, butted in, and introduced
himself, and Jamie Hamilton became the company's first hire. Together
they made a prototype and struck deals with search engines like Excite

Inc. and the online magazine HotWired, later known as Wired News.
HotWired readers then could download the free software, which would
scan the publication and other sites at preset intervals.

As the media began writing about Freeloader in 1996, Amram at first

offered $25 million for the company. "Freeloader had a unique technology
and brand that I thought could get us into the market much faster than
developing things internally would," he said. Pincus suggested that
Amram double the price, a fairly outrageous request given that the com-
pany had no revenue. Amram kept calling to chat over the ensuing weeks,
and Pincus and Paul casually mentioned his interest during an

( 80 ) JOSEPH MENN
exploratory meeting to discuss joint marketing with Yahoo! Inc. CEO
Tim Koogle. Koogle said Yahoo! might be interested in making a
counterbid, and Pincus may have implied to Amram that Koogle was
even more interested than that.

The classic seat-of-pants hustling found a attentive audience in

Amram. "Yosi's style was frenetic," Pincus said. "He was a man on a mis-

sion, never without a phone piece attached to his shirt. He was incredibly

optimistic about the future, even talking about how we'd eventually go
against Microsoft." Amram described the acquisition talks as "kind of a

mad rush." He split the difference between his first suggested price and

Pincus s price, arriving at a bid of $38 million, mostly in Individual stock.

The deal was struck in June 1996 and greeted with ridicule in Silicon

Valley, where the satiric daily webzine Suck called it "era-definingly irre-

sponsible." Not everyone at Individual was quick to disagree. The board,

which had overcome some initial reluctance in approving the deal, was

surprised when just a few weeks later, Amram told directors that he was
planning three more acquisitions. The deals would have cost in the neigh-

borhood of $20 million in stock combined, Amram said. And some of

them would have brought the company into entirely new areas. The
directors felt that Individual should concentrate first on digesting Free-
loader.

As Amram described some of his new acquisition targets for Individ-

ual, the directors "asked a few polite questions" about his views on
integrating Freeloader first, one director said. Amram felt insulted, and he
displayed a temper they hadn't seen before. "He did exhibit some crazy
behavior," said Bob Lentz, the company's chief financial ofiEcer. "I don't

think he was possessed by greed — I think he was possessed by dreams."

Amram's version is different: He said the board had approved the term
sheet for the acquisition of one new target. Beyond News. Then it back-
tracked and "tried to make me jump through a bunch of hurdles" before
closing the deal. In retrospect, Amram said, he did some fundamental
things wrong. "I became overly consumed with what the Internet meant,
how it was going to change the world." Amram said he should have
slowed down to keep the board behind him. "When the whole thing blew
up, it was a pretty traumatic experience for me, and I got depressed."
In July, the company announced it had placed Amram on indefinite

all the rave (81)

leave due to disagreements over the pace of the deals. "Yosi pursued a

wide array of investments and acquisitions unrelated to our core busi-

ness," said Bruce Glabe, an executive vice president. The stock fell 37 per-
cent in a day. Two weeks later, Amram issued a highly unusual statement

saying that he had resigned from Individual after the board turned down
his idea to contribute company shares to Free Spirit Holdings, a fund he

wanted to invest in media, entertainment, and health companies. And he

attacked the board, calling for a special meeting of shareholders and the
formation of a committee to evaluate the board's performance. Later that
day, the board fired Amram, who said he would fight to regain his job.

The escalating and very public dispute seriously hurt what had been
Amram's shining reputation around Boston.
Even worse was what never became public. Before Amram's press

release, the company had attempted to reach an agreement with him, and
it invited him to discuss how he might return. When Amram showed up
for the meeting with the company's lawyers, he brought along a chess-
playing friend —John Fanning. He installed Fanning and a chessboard in

a conference room. Amram would discuss his job with the directors, then

wander back to the conference room to play chess, as if he were playing

simultaneous games. "It was surreal," a witness said.

After Amram was fired, he returned to the Burlington, Massachu-

setts, headquarters to collect his things. Director William Devereaux
asked him to leave. "He simply hit me, and as a result of that, I ended up
on the floor on Amram denied that: Devereaux
my back," Devereaux said.

"puffed his chest out, and I pushed back," Amram said. "He pretended to

fall. It was staged." Employees called the Burlington police. When an

officer arrived, both men gave their version of the events, and Amram

said he wanted Devereaux handcuffed, according to the police report.

Devereaux said he didn't want to press charges and that aU of Amram's
possessions were in boxes that he could take away. "Mr. Amram stated he

didn't think everything of his was in the boxes and wanted to check his

work area for his belongings," the officer wrote.

"I escorted Mr. Amram to his work area, and I could see that there
wasn't anything in this area but the desk and chair and trash bucket. Mr.

Amram went into the trash bucket and found several paperclips and
stated: 'See, I told you they didn't pack all my things.' Mr. Amram then

( 82 ) JOSEPH MENN
went into another area, interrupting a meeting to look into the trash

bucket in this room. I advised Mr. Amram that was enough, that now he
had to leave. Mr. Amram went into the eating area of the company and
wanted to remove several pictures from the wall. I advised Mr. Amram
that if he wanted the pictures he would have to take this matter up in

court at a later date. Mr. Amram appeared to be confused and on some

sort of medication. He was becoming very uncooperative and had to be
led out of the building with his items by officers." Amram denied having
been on drugs of any sort, and he said the officer's reference to paper clips

"should be to the computer disks" he found in his desk.

Individual directors and former loyalists under Amram debated

whether their leader had fallen victim to a raging ego necessary for the
success of many corporate leaders, from Larry Ellison to Ted Turner, or

had suffered some kind of self-destructive break. "It's a sad story," one
director said. "He's got a lot of energy, he's very well educated, and he's

very bright. And he thought himself right out of the box. He built this

racing car, we got it halfway around the track, and he suddenly made a
right turn into the stands." Individual would eventually be sold for a frac-

tion of what it had been worth at its IPO.

By then Amram had taken time off, moved to Silicon Valley, and
joined a new company, ValiCert Inc., which specialized in authenticating
Internet transactions, like the bigger company VeriSign Inc. From the

meltdown at Individual, Amram learned to distance his feelings from the

fervor that can surround business leaders. "It was a very deep personal
change," he said. "The important thing for me was that I came out of it
with significant revelations about staying calm in the heat of the battle."

Amram would need that inner calm during his time at Napster. But his

psychological evolution had a downside as well: Amram grew more

inclined to forgive unwise behavior in partners who reminded him of his
younger self.

Amram decided to do his future investment deals on the side, as an

angel investor. When Fanning began calling his mentor in the summer of
1999, telling him that Napster was going Amram put him off.
to be big,

"I'm not going to invest if you're the CEO," Amram told him, as gently
as he could. "I don't think you're effective."

But in August, Amram was impressed by Andy Evans's interest and

all the rave (83)

by that of Draper Atlantic, a real venture firm that Amram believed

would invest alongside him. He agreed to put money in on three condi-

tions. First, Amram would name the CEO. Second, he and the CEO
would form the majority of a three-person board, and therefore be able to

outvote Fanning if need be. And third, the company would move to

northern CaUfornia, where Amram could keep an eye on it. Finally des-

perate for a deal. Fanning agreed. Amram wired $250,000 over Labor
Day weekend for 1.25 million shares at 20 cents apiece, and Napster was
set to move across the country. "Yosi saved our butts," said Tom Carmody,
Fanning's neighbor and right-hand man.

( 84 ) JOSEPH MENN
 going west

ONLY A COUPLE OF WEEKS PASSED BEFORE SHAWN FANNING

and Sean Parker packed their bags for California at the beginning of Sep-
tember 1999, as investor Yosi Amram demanded. "It wasn't even much of
a decision, it happened so fast," Parker said. Excited, he took whatever he
could carry from Virginia and went to the airport. Shawn Fanning was
supposed to fly the same day from Boston, but he misplaced his driver's

license and couldn't make the flight.

When Parker arrived at the San Francisco airport and discovered his
partner wasn't there, he realized he was alone in a city where he had no
friends, no support network, and no place to stay. Then he heard his

name being called out over the public-address system. He picked up the
phone to the voice of Roman Dzindzichashvili, the fifty-five-year-old

chess grandmaster John Fanning had lured from the rival Carnegie Mel-
lon chess network when he set up Chess.net. Fanning had phoned

( 85 )
Dzindzichashvili and asked him to put up his nephew and Parker.

Dzindzichashvili gave Parker his address in SausaHto, across the Golden

Gate Bridge in Marin County, and told him to take a taxi. Parker gath-

ered his bags and arrived late at night, having traveled three thousand
miles to a bizarre new world. A gruff, potbellied giant speaking in a thick
Russian accent greeted him at the door. "Sleep in there," Dzindzichashvili

said. "We talk in morning."

Shawn arrived a day or so later, exhausted from being unable to sleep

on the flight. "I was in really bad shape, just from programming for eight

months. I hadn't been exercising or lifting weights," he said. "I was going
to a strange place. I didn't get a sense of what I was getting into or really

much of an understanding for what it meant to start a company or raise

money or any of those things." With the Internet bubble in full bloom,
finding somewhere to live was close to impossible for anyone of modest
means, let alone a teenager without a credit history. So Shawn and Parker
lived with Dzindzichashvili for three months. Together, they tried to
adjust to their host's strange ways. Among other things, he would order

them to stay silent and in their bedrooms when his chess pupils came
over. He was renowned as a chess instructor, and nervous parents would
bring their children over in the hope that they had produced the next
Bobby Fischer. The parents would wait tensed on the couch and staring

as Dzindzichashvili played the children and coached. Dzindzichashvili

was usually serious, and the humor he did display seemed equally black.
Parker had never seen anything like it, but Shawn had: It was a Russian

sense of humor, the same kind that Dmitry Dakhnovsky had shown at

Chess.net.

Once, when both Napster founders were in their rooms, they heard a
searing, maniacal laugh. Alarmed that something was wrong, they ran
downstairs to the room where Dzindzichashvili slept. When they looked
in, they saw the giant sitting in front of his computer screen, his face red,
laughing so hard that it must have hurt. He kept pointing at the screen,
where a programmed cartoon figure would dance when Dzindzichashvili
clicked on it with the cursor. "He dances! Look at him!" he boomed,
near tears.
The living situation was not the only logistical hurdle for the
teenagers. There were also the matters of transportation and of meeting

( 86 ) JOSEPH MENN
and adjusting to their coworkers. Before they showed up in San Mateo
for their first day of work, they knew almost nothing about the two cen-
tral figures who would be running Napster, though they assumed both
were successfial professionals. They knew that Bill Bales would be a vice

president and had the impression he was a Harvard M.B.A. with

repeated scores as a Valley business leader. They knew that their CEO
was named Eileen. And that was about it.

Steeped as he was in the ways of Silicon Valley, Yosi Amram was far

more connected than an outsider like Fanning could ever be. As he wired
Fanning the money for his stake in Napster, Amram told his network
that he needed a CEO and other managers to take a risk on an Internet
music company that was growing rapidly through word of mouth. To
help with the recruiting,Amram turned to Bales, an excitable business-
development executive Amram had known for years. Bales had worked at
Amram's Individual Inc., and Amram had backed Bales when he founded
a video news service in San Francisco called ON24 Inc. Bales agreed to

work at Napster in exchange for stock and signed on as a vice president,

with a six-month mission to bring in more fiinding and more executives,

including a CEO. Bales and Amram soon had a stopgap CEO in mind:

an old friend, venture capitalist Eileen Richardson.

As OFTEN HAPPENED IN THE Valley, Richardson presented herself by

accident. She knew Amram from when both worked in Massachusetts,

and she had called him to talk about another technology start-up she

was working for, a company so secretive it was incorporated as the Palo

Alto Coffee Co. Richardson met Amram for lunch to see if he would be
interested in investing. She spent most of the time talking about the
pseudo-coffee company, which in reality had developed a system for
automated Web scheduling of consumer appointments with dentists,
hairdressers, and the like. But Richardson also mentioned that she was
interested in other tasks, as a sort of hybrid angel investor and executive.
That way, she could gain operational experience and stay close to the

beginning of a company, when the energy and the potential financial

rewards are greatest.

Near the end of lunch, Amram told Richardson that he was backing a

all the rave (87)

new company she might be interested in. "It's called Napster," he said,
"Go check it out." When she went home, Richardson logged on to Nap-
ster's site. "This is the most unbelievable thing I've ever seen," she said

aloud. If a company had been designed from inception to press all of

Richardson's buttons, it would have been Napster. An intense music fan,

she had attended house-music shows and other concert festivals overseas
and had been depressed to find little she liked as much when she returned

to American record stores and radio. A single mother of two children, she
couldn't go out to smoky clubs every night looking for new acts. And
much of her career had been spent in musical backwaters where she
couldn't have found what she wanted to hear even if she had stuck the

kids with a sitter. Then, as a venture capitalist in Boston, Richardson had

supported Firefly, which recommended new music to listeners based on
what they and others with similar tastes liked already. The firm was later

sold to Microsoft, and while it was not the biggest financial win of
Richardson's career, it was still the one she felt most passionate about.
If Firefly was a Zagat guide to music, Napster was Waiters on
Wheels. It would bring nearly any dish you wanted from anywhere to

your home, and it was free. Suddenly, just by downloading one program,
Richardson could find thousands of songs to sample. She told Amram
she wanted in, and he hired her for a six-month term. She was the first

and only candidate he interviewed. Asked later why he picked Richard-

son for the job, Amram gave his familiar refrain: "I didn't have a lot of
time." But he added that Richardson had "a lot of enthusiasm and passion
for the business." Besides, he said, "the first task was building a manage-
ment team and raising money. She had done that, and she was plugged
into the VC community."
Richardson was a good choice for a more esoteric reason as well.

With her warm and engaging personal style, she came across as far

younger than her thirty-eight years. Yet she was fiuent in the financial

language of the Valley. The combination made her a near-perfect safari

guide to bring the wide-eyed teenagers toward the billionaire VCs they
would soon need to approach. "Eileen was a good person to have as a first

CEO," Shawn said. "We got along really well. She was easy to interact
with, kind of energetic, and kind of experienced in areas we were not. She
seemed to enjoy the time as much as we did."

( 88 ) JOSEPH MENN
 Richardson had weaknesses, though they were less pronounced than
Fanning 's style of blustery confrontation and Amram's attempts to catch
up with the speed of light. One obvious shortcoming was her lack of
management experience. She also had a habit of failing to focus methodi-
cally on the task at hand. And she could get overinvolved emotionally

with the firms she invested in and those that worked there. "Either you
love her or you hate her," said her sometime adviser, sometime employer,
sometime backer and sometime boyfriend, John Lee.
Besides her immediate and intense attraction to Napster's technology
and her own career ambitions, Richardson had a personal reason for

wanting to take on her CEO job. That reason was Lee, her on-again,
first

off-again romantic partner. Lee was the CEO of the purported coffee

company, which would soon emerge under its real name, Xtime. Even
though the two were in an off period in their romance, they remained
close, and Richardson had agreed to help Lee by serving as a vice presi-

dent at Xtime Inc. Lee loved being an Internet CEO, which at the time
struck many as the most desirable job in the world. Richardson, though,

thought Lee was getting a little full of himself She didn't feel she had

much left to prove, having been a successful VC for years, but she was
tempted to show him up close that she could run her own company, then
have it run circles around his.

A lot of their mutual friends thought Richardson and Lee would one
day get hitched. It was her most serious relationship since her marriage,

which had ended in the late 1980s. No matter how many times the

stormy duet had broken up, they always returned to one another. The
problem, as Richardson saw it, was that they were too much alike. "We
were both used to being the dominant person in a relationship," she said.

Other friends questioned the wisdom of her getting involved at Xtime,

thinking it was poor judgment to work for her ex. Their relationship had
hurt her professionally once before, and in time it would prove a dis-

traction at Napster. But Richardson had never done things the conven-
tional way.

Silicon Valley venture capitalists come from an extraordinary array

of backgrounds. Before the industry was nearly taken over by amateurs in

all the rave (89)

the late 1990s, many of the top performers came from entrepreneurial or

technology careers. John Doerr of Kleiner Perkins, the best-known VC in

the Valley, had been the number one salesman at Intel Corp., once throw-
ing in a lawn mower to close a deal in the Midwest. His partner Vinod
Khosla cofounded Sun Microsystems. Each had a deep understanding of
how rapidly growing companies function on the inside. Another reason-
able choice for preparation as a VC would be a career as a serious investor
in public companies. Since almost no one before 1998 listed venture

capital as an early career choice, "the only honest answer for the question,
'How did you become a VC?' is, 'I got lucky,'" said Scott SandeU, of the
venerable VC firm New Enterprise Associates.
That certainly apphes to Richardson, who was one of many who got
there quite by chance. But besides natural intelligence and ease with other
people, two useful VC qualities, Richardson had a third, critical strength:

a streak of independent thinking. Once everybody agrees that a given

piece of technology or an idea is the right one, it's too late to make a

killing. Richardson had independent thinking in spades, despite a tradi-

tional upbringing near Middletown, New York. Her dock-builder father
had worked on the Verrazano Narrows Bridge before he was permanently
disabled in 1973. Her mother had emigrated from Ireland at twenty-

seven, and they were poor enough that as a young girl, Richardson wor-
ried about the family losing its house. Often, Richardson's mother
emphasized the way out of poverty that had nearly worked for her: find-

ing a good husband early. The lectures made an impression, and after
high school, Richardson went to secretarial college, following her
mother's plan that she get a job where she could try to marry the boss.
Richardson's first workplace superior, a seventy-year-old lawyer,

wasn't marriage material. Vivacious and driven, Richardson got bored

with filing and other routine tasks, and she began doing some of his legal

work. She soon realized that she could do a lot more than type. She
entered St.Thomas Aquinas College in SparkiU, New York, then met a
cadet at West Point and married him at age twenty-one. Without gradu-

ating herself from Aquinas, she left with him when he graduated and
transferred to the first of a series of Army installations around the coun-
try. In each new town, she took an office job —once at an advertising firm,
another time at a title-insurance firm. She kept thinking she could do

( 90 ) JOSEPH MENN
more, even as she cared for her two young children. After her marriage

ended, Richardson moved to Boston and looked for a company that

might pay for her to get an M.B.A. She found Atlas Venture, a VC firm

that wanted a secretary with research skills.

It was 1989, and no one Richardson knew had any idea what venture
capitalists did. She grabbed a book on venture finance and started read-
ing. "I thought it was the coolest thing I had ever seen," Richardson said.

She stayed at Atlas more than six years, promoted again and again until

she reached associate, helping to bring in deals including Firefly and Ver-
meer Technologies, which developed what is now Microsoft's FrontPage

publishing tool. "She was energetic and worked hard," said Atlas partner
Barry Fidelman. Richardson's biggest value to the firm, he said, was her
ceaseless networking. She spoke at university panels and garnered local

press as a rare woman in venture capital. Her good looks and self-

described flirtatious manner didn't hurt: They got her calls returned more

quickly. The public attention brought more deals to Atlas. And it was at

the networking fiinctions in the early 1990s that Richardson met people
like John Doerr, Intel cofounder Gordon Moore, and local technology

star Yosi Amram of Individual Inc.

Richardson stayed in touch with Amram even after Individual blew
up in 1996, and they met up that year at the Agenda conference, one of

the top annual technology gatherings. With Amram at the meeting was
another Individual employee whom Amram seemed to like a lot, a

disheveled young salesman named Bill Bales. "I liked him personally,"

Richardson said of Bales. "He was so fiill of energy, and he was fim to
hang around with."
That same year, a new Chicago venture firm recruited Richardson to

join them as a partner. JK&B Capital was flush with money from investor

George Soros and Charles Wang, the founder of Computer Associates

International Inc. Richardson signed on as a fiiU partner and the sole

software expert. JK&B had hit after hit, fiinding Exodus Communica-
tions, Phone.com, and other then-stars. On one of Richardson's trips

west, Bales tried to sell her on a small company he was working for called

Quote.com Inc. She wasn't interested. But when he mentioned his other

job, at a small Web content-management company called Interwoven

Inc., she got very interested indeed and went to look at the firm's Los

all the rave ( 91

Altos office in early 1997. There she met the man who would be her main

investment contact at Interwoven, early employee John Lee.

Interwoven made software that allowed multiple people to collabo-
rate on a document and track the changes. The company was one of
Richardson's first picks at JK&B, and it would turn the firm's $3 million

investment into $300 million. It made her reputation as a VC, and it

made her and many of her contacts rich. Interwoven prospered because

"it had a fabulous CEO, who then brought in a fabulous management

team, and it had a tremendous market opportunity," said Kathryn Gould
of Foundation Capital, a venture firm that invested after JK&B did. And
Richardson had been well ahead of the curve in providing financial sup-
port. "She believed in our vision before any of the other VCs really saw
it," said Interwoven founder and first CEO Peng Ong.
But the early days at Interwoven, out of view and before its initial

public offering in October 1999, were far from fabulous, as was its second
CEO, a gregarious salesman named Steve Farber. The company tried to

raise substantial amounts of money before it had a working product and

serious customers. Farber was besotted by the Web, and he focused on
shifting Interwoven's software to the Internet instead of selling to large

companies. Now chairman, Ong had problems with Farber, and eventu-
ally the rest of the board did as well. Richardson, an Interwoven director,
often flew out to Los Altos to calm the troops. Farber "was focused on
the wrong things —saving money, not leading or strategy," she said.

It was hard for Richardson to act against Farber, investors said,

because she was one of the most active in inspecting the business and had
developed a good relationship with him. JK&B chairman David Kronfeld
said that one of Richardson's best attributes was her ability to form such
close bonds with entrepreneurs. "She clearly had a very hands-on rela-

tionship with Interwoven," Kronfeld said. Her relationship with Farber

was so good that he got the wrong idea, sometimes suggesting that the
two of them run off together. Eventually, after a final blowup by Ong, the
board asked Richardson to fire Farber, and she did. Interwoven went
looking for both a new CEO and new investors, and wound up with win-
ners in 1998: veteran software executive Martin Brauns and Foundation
Capital, both of which agreed to get involved on the condition that the

other one did.

( 92 ) JOSEPH MENN
 By then, Richardson had begun dating Lee, who reported to the

CEO. When the new Interwoven CEO found out that one of his lieu-

tenants was dating one of his directors, he told the other board mem-
bers even as Lee resigned. Three weeks later, Richardson was also asked

to step down. With more-established venture firms coming in and

more-experienced directors available, Richardson would have been on

her way out anyway, she and another director said. "She just made it

easier for us by screwing up," the other director said. "I'm not a hard-

core moralist, but serious people don't do this sort of stuff. She was a
complete amateur."
Ong said he knew about the relationship between Lee and Richard-
son before the new CEO did. He didn't act on the information because
so much else was going on, including a fierce board debate about the

company's direction. But Ong said it "absolutely" bothered him. "It really

caught me off guard. It was so out of the norm for me. I would say
things in executive staff I expected to be private, and other people would
know about it. It caused problems at the board level." While Richardson
had done good things for Interwoven, Ong said, he was relieved when
she left.

In June 1999, Richardson decided to leave JK&B as well. She took

two months off, then joined Lee at six-month-old Xtime in August. At
the same time, she decided to play the role of mentor, investor, and early-

stage executive at other firms as well, and she called a few people she
knew. The meeting with Amram was the first of what she had expected
would be a series of exploratory efforts to find the companies she would
work with. After he told her about Napster, it would be the last such
meeting.

By then, Richardson had known Amram for nearly ten years. She
had known Bill Bales for several years as well, and she knew he would be
Napster's vice president of business development, often the second most

important position at Valley start-ups. Amram told her that he thought

John Fanning, who retained majority control of Napster, was a good

entrepreneur, just not someone he wanted as a CEO. And Amram said

that together, he and Richardson could handle any problems with Fan-

all the rave (93)

ning. "I completely trusted Yosi. I took his word for that," Richardson

said. "I wasn't going to fly to Boston to check him out. I didn't think Yosi

would get involved if the guy was psycho." Richardson didn't stop to

think about how big Amram's equity stake was, and if that might influ-

ence his judgment. She also didn't consider Amram's history of rash
investments. And Bales's presence should not have reassured her. Farber
had fired him from Interwoven for failing to remember where meetings
were being held and for showing up to give sales presentations with noth-
ing more than a crumpled piece of paper, according to both Lee and Ong.
(Bales said he was fired because Farber believed he had spilled the beans
about Farber 's unprofessional conversations with Richardson. In a subse-

quent interview. Bales said he wasn't fired at all, but resigned.) And the

thirty-four-year-old Bales had been forced out at two other companies,

including one he founded, his fellow executives said. Within his first

months as Napster's dealmaker. Bales would prove to be a divisive force

there as well.

Even in San Francisco and neighboring Silicon Valley, where alterna-

tive lifestyles are embraced and neckties are scarce as snow, the rumpled
and dark-haired Bill Bales was unusual. Outwardly laid-back much of the
time, he could collapse in tears at a mistake or grow so frantically excited

that he would slap himself to calm down. Bales loved the pace of the
wheeling and dealing in the Valley, an atmosphere that could not have
been more different from that of his days playing Little League baseball
in rural Thomson, Georgia. Bales dropped out of the University of Geor-
gia to work at a brokerage in Atlanta, but he was already thinking about
how to make a serious splash. "I've always wanted to do something big in

business. That's what had motivated me," Bales told Georgia's Augusta

Chronicle in July 2000.

If Bales's southern accent made it clear he didn't hail from the usual
background, he also didn't act much like the others once he had arrived.
At Amram's Individual, Bales made overtures on behalf of the Massachu-
setts firm to buy Silicon VaUey start-up Quote.com, which gave up-to-

the-second stock-trading information even to users with slower modems.

The deal didn't go through, but Bales later joined Quote.com as VP of
sales. Later, he would identify himself as a cofounder of Quote.com, and

he was described as such by the media. That was not, however, how

( 94 ) JOSEPH MENN
founder Chris Cooper saw it. Cooper had started the company in 1993
with his savings years before he hired Bales. "The only founder was me,"
Cooper said. Bales worked at the California company for at least five

months. Then, Cooper said, he began to have "integrity questions" about

Bales, declining to go into detail. "I had to let him go." Bales said he was
terminated because he held so much stock and because Cooper beUeved
that Bales had told people about Cooper's 1982 drug conviction. (Cooper
said the topic came up only afterward, when Bales "used the threat of

spreading negative news about me as leverage to wrangle a settlement.")

Quote.com was later acquired for $80 miUion during the peak of the
Internet bubble, making Bales wealthy. By then, he had moved on to

Interwoven, and that firm's IPO stock also would do him weU.
Everywhere Bales went, he made an impression. After Interwoven,
Bales began a new venture in 1998 with television reporter and close
friend Nina Chen. The pair attended a class on Internet video production
given by Csaba Fikker, a Hungarian immigrant living in the Bay area.
After class one day, Bales and Chen approached Fikker about turning his
postproduction facility into a new firm, and Fikker joined them at News
Direct. The firm produced video press releases and then news stories

about businesses, posting them online. Funded by Bales and his old boss
Amram, who served as chairman, News Direct changed its name to
ON24. Subsequent investors included former Netscape CEO Jim Barks-
dale, former Times Mirror senior vice president Ed Johnson, and

Dataquest Inc. founder Dave Jorgensen, and the company hired Sharat
Sharan as CEO. Bales stayed on as the salesman and dealmaker. "BiU is a

dreamer, a great businessman," Fikker said. "But he can get way out of
line. He never pays attention to details, timing, what costs what."
Bales's single-mindedness got him into trouble when his personal fife

crossed with the professional. At ON24, he was aggressively flirtatious

with female colleagues, paying them excessive compliments on their looks

and telling them unappreciated off-color jokes. With one of them,
twenty-two-year-old reporter Alona Cherkassky, he may have gone fur-
ther. Cherkassky was friendly but rejected Bales's advances. Just after the

July 4 hoHday in 1999, Bales told her how nice she looked that day. Then,

Cherkassky said, he mouthed the words "I want to fiick you." Cherkassky
was upset but in a precarious position at the company, nearing the end of

all the rave (95)

her three-month probationary employment period and hoping for a regu-
lar staff job with benefits. "I was pretty freaked out," she recalled. "I was
like, 'How am I going to get him fired — he owns this place.'" She went to

her supervisor, and Bales was told to leave the office for good. "Bill does
not understand the concept of no,'" Fikker said. "If he wants to get into
a room and there's no door, he will go through the wall." Amram said

that Sharan probably wanted to get rid of Bales anyway and seized on the
incident to make his move. Bales agreed that Sharan wanted him gone
beforehand — after all, he had suggested that the directors get rid of
Sharan instead. As for the Cherkassky incident, Bales said he merely
mouthed an off-color punch line to a joke. Chen said she could see both
sides. "Bill's personality is somewhat erratic," she said.

Erratic may be a charitable way of putting it, if Bales's criminal record

is any indication. In November 1992, he was charged with driving under

the influence, registering an impressive .16 blood-alcohol content. Many
young men get arrested for drunk driving: That's why many states have
first-offender programs, which replace convictions and more serious sen-
tences with education and probation. Bales pleaded no contest to the

charge and was ordered to spend two days in jail, then join California's
first-offender program and pay monthly fines while on probation. But
Bales failed to enroU in the program. And when the judge ordered him to

appear at a hearing. Bales skipped that as weU. This time, the judge issued
a warrant for Bales's arrest.

The docket sheet summary of the proceedings in the case goes on for

eleven pages. Ordered again to first-offender program. Failed to make

fine payment. Ordered to come to hearing. Failed to appear at hearing.

Arrest warrant issued. Failed to appear at next hearing. Probation

extended. Failed to make fine payment. Arrest warrant issued. Bales
finally completed the first-offender program and paid the balance of his

fine in July 1994. His car troubles continued into his time at Napster:
Bales's California license was suspended in 1999 and remained that way
more than two years later.

In 1994, Bales went to work in Massachusetts, taking the job at Indi-

vidual Inc. After his return in 1996, it took less than a year for him to
come to the attention of the police again, when a former girlfriend com-
plained that he was stalking her and tried to break into her apartment.

( 96 ) JOSEPH MENN
According to the woman's sworn statement, she had dated Bales for three
years before his move east. During that time, he abused alcohol; slapped,

bit, and restrained her; and threatened her with a kitchen knife. The rela-

tionship ended with his move to Massachusetts.

On his return to the San Francisco area. Bales showed up unan-

nounced at the woman's job and called her there and at home. She told
him they were through. In May 1996, she took a new job at Sun
Microsystems and moved from Burlingame to San Mateo. "I did not list

my phone number in an attempt to prevent Bales from contacting me,

and I gave strict instructions to my family, friends and co-workers not to
give any information about me to Bales," the woman wrote in her decla-
ration. "I was forced to change my lifestyle to hide."

It wasn't enough. Bales found out where her new office was and
showed up there four days in a row. Then he figured out where she lived

and began coming there as well, even though she wouldn't open the door
to him. After midnight one January night, Bales's ex-girlfriend heard
someone outside. She was on the phone with a police dispatcher when
her bedroom window broke. She fled back to the bathroom and locked

herself inside until the police came. By then, the prowler had left the

scene.

"I have not stayed at my residence since that incident for fear that

Bales will return and hurt me," she wrote three weeks later. "His stalking
has become more brazen, and it is clear that he is becoming more violent.

Bales has followed me, called me and harassed me for over a year and a
half I believe that Bales is not mentally balanced, and coupled with his
abuse of alcohol, I believe that he is extremely capable of violent acts." A
judge issued a temporary restraining order to keep Bales away from the
woman and her family for three years. (Bales said the woman's statement
contained exaggerations and that he doesn't have a drinking problem.)
In most walks of life, an estrangement from reality is not a good
thing. Yet in early stage business development, in which the job is to

bring money and talent to aid something quite small, it has some advan-

tages. That is truer in Silicon VaUey than elsewhere, and it was truer than

ever there in 1999. Bales's friend Adrian Scott, an early Napster investor
and adviser from San Francisco, had backed a Bales company before Nap-
ster and would do so again at Bales's next venture. "Bill is a challenge to

all the rave (97)

work with," Scott said. "But in those first few months, you need to get
momentum going among investors. You're selling them on how big some-
thing can be when you have nothing more than an idea and a few people.

You have to create the perception that they're going to get pushed out if

they don't get in now. That takes a huge amount of energy and nerve. You
can't be focused too much on reality, because you're selling a dream."

When Napster moved to San Mateo to take its shot at the big time,

Shawn and Parker weren't the only ones in the dark. Amram didn't know
about John Fanning's or Bales's legal problems, and he hadn't read Seth
Greenstein's lawsuit-defense memo before investing. Richardson didn't

know anything about Fanning, and she knew far less than she should

have about her friend Bales. She didn't know about the people who had
looked at investing in why they had passed. And
Napster or perhaps most

regrettably, she didn't know much about the law.

Richardson said that her first question to Amram had been about the
state of copyright law. Anything as powerfiil as Napster, that took away so
much music without paying any money to the labels, had to be illegal, she

worried. Amram assured her it wasn't, and he told her about the Green-
stein memo. And that was enough to convince her. She was foolish for
not doing at least a modicum of due diligence and speaking to a lawyer
on her own. But it's also true that CD burners were rare at the time

they would soar in popularity later, precisely because of Napster. So to

Richardson, downloading music onto her computer meant it stayed there,

playable only through the low-quality speakers that were then typically

sold for desktop PCs. Most likely, you would take only a song or two
from a given artist, she thought. If they were good enough, you would go
out and buy the CD.
Richardson bought 333,000 Napster shares from John Fanning at 30
cents each and joined him and Amram to form a three-member board of
directors, with Fanning as chairman. Then she subleased some adjacent
office space in San Mateo from John Lee's Xtime, where she still planned
to work some days. With Napster, Richardson decided that she had to

keep nearly as quiet as Xtime did about its plans. The office space was
appropriately anonymous, on the upper ffoors of an aging off^off^white

( 98 ) JOSEPH MENN
bank building in San Mateo's 1950s downtown. Richardson also decided

to move fast to raise more money. After Napster's June release in a test

version, it had been downloaded thousands of times within a few days.

Over the summer, the number of users swelled to a hundred thousand. As
college students returned for the fall term, Napster had the potential to

turn into the ultimate case of viral marketing, with word of mouth
spreading it faster than any advertising could. But the usage was already
straining Napster's capacity, and the system kept crashing. If the positive
buzz was replaced by griping about the crashes, Napster could die even
before its first official release.

Soon after Shawn and Parker arrived in San Francisco, Bales drove to
Dzindzichashvili's house to meet them. Accompanied by girlfriend Holly

Shin and a large golden retriever, Bales took the two teenagers out to
breakfast to learn more about the company he had just joined. Parker was
used to explaining Napster by then, having pitched to so many investors

and gotten mostly positive initial reactions. But even Andy Evans, who
had promised money the next day, wasn't much of a preparation for Bales.

As Bales got more and more enthusiastic, his voice rose to the point of

screaming. After a struggle, he brought his voice down, speaking rapidly

in a hushed tone and muttering, punctuating his outbursts by pounding
the table. Parker had never seen anything like it. But then, he supposed,
maybe that's what a VP of business development was supposed to be like:

a half-crazed evangelist who could convince other executives, investors,

and companies to come along for the ride.

After breakfast. Bales drove Shawn and Parker to a rental-car agency

so they could pick up something to get around in. On the drive. Bales sat

Shin in front and the golden retriever in the back, sandwiched between
Napster's founders. The Valley's future stars explained that neither of
them had credit cards and were too young to rent a car in any case, leav-

ing Bales a bit bewildered about what to do. They suggested that Bales

rent the car while they stayed out of sight, then turn over the keys. The
ploy worked.
During their first two days in the office, Shawn and Parker began set-

ting up the computers and other gear they needed to tend to the Napster

system. A few times, a woman they took to be an executive assistant at

Xtime greeted them warmly, "I've heard so much about you," she gushed.

all the rave ( 99

"I hear you guys are great." Shawn and Parker were poHte, shook hands

with her, and scurried off. The third time they ran into her, someone else

called out "Eileen," and the woman turned. In the next second, Shawn
and Parker whipped their heads around to look at each other. Whoops,
their eyes said in chorus. This is our CEO.
Their first encounter with Bales had been one surprise. Now meeting
the CEO by accident was a second. By the end of the first week, as the

surprises kept coming, Shawn and Parker began referring to them by

name: the "what the hell is going on" moments. Most surprising of all,

the stunners didn't abate with time —they grew more common. "The fre-

quency of those moments was increasing at a geometric rate, in tandem

with the growth of the user base," Parker said. "We didn't have any real-

world experience to process what was happening to us. It really felt like

we were in a movie, even back then. Something crazy would happen, and
we'd say, 'That's going in the movie.'"

Had Parker been more experienced, he would have realized that the
next thing that was supposed to happen in the movie was the formulation
of a plan for how Napster would make money. But for different reasons,
neither Bales nor Richardson seemed to think that mattered much. Bales,

Parker said, was "gung ho but undirected," adopting new business

approaches and discarding them as often as once a week. He was inter-

ested in raising money and hiring executives, including someone more

experienced to replace Richardson. And Richardson wanted to leave the
decisions about the right business model to the experts, the big-league

venture capitalists she hoped to approach in a few months. They would

have the best connections and their own ideas about how to proceed, she

figured. It would be a lot easier to have John Doerr approach Edgar

Bronfman Jr. at Universal Music's parent firm than to do it herself.

That's not to say there were no early debates about direction: There
were plenty, and they were chaotic. Parker would call strategy meetings
and use the whiteboard to explain what he thought the company's next
steps should be. "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!' 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.'"

( 100 ) JOSEPH MENN

 One debate was whether Napster should eventually charge a monthly
fee or instead charge per download. Another possibility was to adopt a
combination approach, akin to cable companies charging different

monthly rates for basic and premium service, then adding pay-per-view
revenues on top of that. A separate issue was who would keep whatever
money came in. At one extreme, the Napster crew considered offering the

record labels every cent from the sale of music, while Napster would keep
the profits from selling items like rock-'n'-roll merchandise. But how to

structure a legitimate and sustainable business was simply not the focus.

Fanning's deputy, Tom Carmody, flew out from Hull once for an inspec-
tion. When he was done, he called everyone together. "A business is like a

person," Carmody said. "Napster has a spirit. It has a body. But it doesn't

have a brain."
One of the first sketches of the Napster plan was drawn in early

October 1999, when it had 150,000 registered users and 22,000 simulta-
neous users. (Some people have questioned Napster's claims for the num-
ber of registered users it had, which is a natural reaction to a figure that

eventually climbed above 70 million. Napster counted such users by their

log-on names. Users could register more than once at Napster, but the
most common reason people reregister at other Internet service firms is

that they forget their passwords. Napster's servers stored users' passwords

for them, so they didn't have to be remembered. A second reason for

inflation would be users who were banned trying to get back on. But rela-

tively few people were banned from Napster before the service went dark,

and many families shared one user name. So the logical conclusion is that

the highest figures were only modest exaggerations. Ritter and another
engineer who kept tabs on internal traffic reports believe that the service

had more than 40 million users at its peak.) The main author of the four-
page strategy document, which was discovered in litigation later but kept
out of the public court file, has never been established. Parker said it was
the result of groupthink, the record of a written discussion in progress.
Meant for internal eyes only, the conversational paper lays out a "road

map summary" of the new company's goals, showing that even then, the
point was to cash out, not to make money the old-fashioned way, improve
the technology for its own sake, or make sure the law was being followed.

"CLOSE ANGEL FUNDING," one section all in capital letters begins.

all the rave ( 101 )

"progress user base to x# of concurrent users, get top tier
vc funding. perform tests to determine deal presented to
sony. do a deal with sony. do a deal with other labels
under similar terms. determine whether to become a portal
or intermediate infrastructure. lather. rinse. repeat."

The crew planned to target Sony first because the company's

consumer-electronics base might tempt it to tolerate piracy more, Parker

said. As much as any document that has emerged, the October plan also
reveals a strategy that comes close to a dictionary definition of extor-

tion—using threats to extract money. By exploiting the obvious Napster

advantage
— "users know that by connecting to Napster, they have access

to any music they want, absolutely free" —the author explains that the

record industry will eventually be forced to negotiate in order to reach

Napster's audience and get data about its habits: "We use the hook of
our existing approach to grow our user base, and then use this user base
coupled with advanced technology to leverage the record companies into
a deal. The fact that we grow to 4 or 5 million simultaneous users with
millions of songs (through the inherently viral nature of the Napster

concept) can hardly be ignored by Sony or EMI."

The paper also proposes a campaign of subterfiage. Napster should
not attack the record industry directly, instead stalling it until the com-
pany grew big enough to force a deal. "The key is to co-exist with the

record industry, at least temporarily," it says. "The record industry is

essential to our efforts." And the deal itself would be a trap: The plan was

to "make Napster key to promotion, allowing us to ultimately bypass the

record industry entirely." The document makes plain that the key to get-

ting rich was to get as many users as quickly as possible, and that the
good news was that this was happening already. "We already know we
can grow the user base. The direction taken after this point is trivial.

We can sell our user base out to a portal for a few hundred million, or
take the following steps to create a billion-dollar company." Those steps

included hiring top managers and programmers and, again, getting top-
flight VC fianding.
There was one solid reason for not choosing a business model that
aimed at profitability. Many of the copyright laws and their interpreta-
tions by the courts hinged on where the money went. Taping a record for

( 102 ) JOSEPH MENN

a friend was okay; taping a record in order to sell hundreds of copies was
not. Napster's board figured that its legal chances were best if it stayed

profitless for the time being. Fortunately for that approach, the stock
market and venture fiinders were more tolerant of red ink than ever
before.

Since user growth was happening by itself, Richardson and Bales set

hiring and fijnd-raising as top priorities. Their first hire in California was
Ali Aydar, the twenty-four-year-old former Chess.net engineer, who hap-
pened to be working just a mile away at his third struggling start-up. John
Fanning called Aydar first, and Aydar didn't believe him when he said

Shawn had won fimding for his idea. But Aydar called Shawn, who said

it was all true, and he met Shawn and Parker for dinner the next evening.

"At first, I didn't get how big it could be," Aydar said. "But Sean Parker is

a great pitch guy, one of the best I've ever met." Parker and Shawn ran
through how they planned to grow, then face the labels and make a deal.

Suddenly, Aydar did get it. He lay down in the booth and looked at the

restaurant ceiling. "Oh my God," he said then. "I knew at that moment it

was going to be huge. I was like, 'I will do anything to be part of Nap-
ster.'" Soon Aydar satdown with Richardson on a bench outside Napster
and told her that he had one big concern. He knew John Fanning better
than anyone, including Shawn. "Are you sure you can handle him?" Aydar
asked her. She said she was sure, and he joined the company.
Aydar was a rarity on Napster's fledgling engineering team. He was a

bona fide college graduate with traditional training, and he didn't go

around stealing software or breaking into other people's computers. He
was also less boisterous than Jordan Ritter, who was still helping from
Boston, and slower to complain, perhaps because he'd been in the busi-
ness world longer. Closer to the Napster norm was talented twenty-year-

old engineer Jordy Mendelson, an enthusiastic participant in "warez"

groups on IRC trading pirated software and a friend of both Shawn and
Parker, "Jordy is eccentric and phenomenally brilliant, like [mathemati-
cian] John Nash," Aydar said. "He could go through a pile of papers by
college professors and understand more in two hours than I could after

a month."

all the rave ( 103 )

 A crucial hire was the man who would supervise the young troupe.
Eddie Kessler joined as vice president of engineering on October 6, 1999.

Kessler was a pleasant and bookish forty-year-old who had taken a wan-

dering path to a technology career. As a Harvard undergraduate, he con-

centrated in psychology and music, graduating in 1981. At Stanford, his

next stop, Kessler did graduate work in psychology, focusing on music

perception without finishing his degree. Beginning in 1988, he worked
for Frame Technology of San Jose for five years, ending as vice president

of software development. He had a string of short-term jobs and consult-

ing tasks until he was named vice president of engineering at Infoseek,

the Web portal later bought by Disney, staying eleven months at that job.

His claim to fame came more than a year after that, when Kessler

cofounded ReplayTV, leading the engineering team that came up with

the advanced VCR. Once again, he lasted only a year, departing in 1998
well before the first product shipped. "Eddie is a great engineer," said

ReplayTV's principal founder, Anthony Wood. "We just kind of had dif-
ferent opinions and started to have some personality conflicts."

Kessler's official biography on Napster's website mentioned only

ReplayTV and Infoseek. Among the omissions was a brief stint at

Quote.com, where Bales had also worked. That's understandable: Kessler

had been dismissed from Quote.com because the technical staff" didn't

respect him, said firm founder Chris Cooper. (Kessler said he clashed

with others at the firm and then quit, though he acknowledged that
Cooper "was definitely ready to get rid of me.")
Bales knew Kessler from Quote.com, and he introduced the engineer

to Yosi Amram before Napster moved west. Kessler and Amram had a
series of meetings about one business and another. When Amram and
Bales described Napster, Kessler was reluctant to join, in part because he
was alarmed that John Fanning had sold some of his personal shares to

Richardson and others. Normally, founders are the last to cash out. "That
was the thing that reaUy bothered me," Kessler said. Kessler asked Fan-
ning about it, and Fanning said not to worry, that the rest of the company
would be worth $10 billion one day soon. And Fanning passed along
Greenstein's white paper on the company's legal defenses. "My reading on

John was that he was a sales guy, unrealistically optimistic to the point of

exaggeration, and very in-your-face," Kessler said. Amram, Bales, and

( 104 ) JOSEPH MENN

Richardson visited Kessler and his wife at their Los Gatos, California,

home and pressed him to join, telling Kessler that he wouldn't have to

work constantly and could still spend time with his young daughter. That
part of the pitch was probably even more unrealistic than Fanning's pro-

jected market value for the firm. But Kessler signed on nonetheless, even-
tually buying more than two hundred thousand shares and imagining
himself on the road to riches.
At Napster, Kessler understood some issues very well, and he knew
whom to call on other points. But as at Quote.com, Kessler developed
few fans underneath him. Some complained that he took credit for tech-

nical work that they had done. In one emotional dispute, Kessler vetoed a

decision by the rest of the executives to grant Ritter's wish and list him in

the section of Napster's website devoted to the company's history. At one

time or another, Shawn, Ali Aydar, and even Richardson tried to get rid
of Kessler as he failed to meet deadlines to launch new versions of Nap-
ster. "I don't think any of them would say, nor do I feel, that I was the best
vice president of engineering the company could have had," said Kessler.

But John Fanning protected him, and Kessler would outlast Fanning's

two successors as CEO.

In Boston, Ritter was still running the back-end server, and he was
reluctant to gamble on a move west. After a series of talks with Richard-
son, he agreed to fly out and discuss the terms that could change his

mind. On the plane, he tapped out the state of things on his laptop. "The
current design, version 2.0, is in many respects a hack," Ritter wrote. "It

was a prototype meant to prove a concept, but which unfortunately fell

victim to its own success. It is not stable, not scalable in any real sense,
and realistically not feature-complete. Version 2.1 has made great strides

over version 2.0 in the area of stability. Numerous bugs have been found
and squashed, but unfortunately as bugs are fixed, more introduce them-
selves. . . . The harsh truth is that, realistically, the current server backend
is not scalable."
Ritter made it to the Napster offices about 11 p.m. on a Friday and
was met in the conference room by Shawn, Parker, Richardson, Bales, Ali
Aydar, Bales's girlfriend. Holly Shin, who was working as Napster's secre-

all the rave ( 105 )

tary, and Xtime CEO Lee, who was introduced as an adviser. As
Richardson led the discussion, Ritter explained where things stood with
the system. Bales talked about strategy. Shawn seemed happy but didn't

act as if he was in charge. At first, Ritter resented the presence of Aydar,

who seemed to share Ritter's mission of keeping the system running. But
after the meeting, Aydar drove Ritter toward a hotel that Shin had
booked him into, and Aydar was remarkably open.
Aydar was excited about Napster, and he told Ritter what he knew
about what was happening behind the scenes. Most important, Aydar

said that John Fanning was still calling the shots, albeit from thousands
of miles away. The two stopped at a Denny's restaurant at 4 a.m. and
began a friendship that would endure through everything that was to
come. It occurred to Ritter that it didn't really matter who was nominally

in charge of the company. He, Aydar, and Shawn were the technical lead-
ers. If they grew unhappy enough to leave, there would be nothing left for

the chiefs be in charge of Ritter spoke to his boss at BindView and told

him how torn he was, and his boss told him that if he turned down Nap-

ster, there would be other great opportunities ahead. But he added that if

Ritter could make the critical difference at Napster, helping to turn it into

something huge, he ought to try.

On Sunday, Ritter returned to work out a deal with Richardson. Rit-

ter had one advantage: He had physical control of the server code, and he
implied that he might not turn it over if he didn't get a decent amount of
stock. Richardson left the room to talk to Amram on the phone and
returned with an offer of options and a $97,000 salary, significantly more
than Shawn, Parker, or even Richardson, who were each getting $60,000.
Ritter accepted, quickly moving into a glamourless Residence Inn near

the offices in San Mateo. After three months with grandmaster Dzin-
dzichashvili, Shawn and Parker moved to the hotel as well.

As at most start-ups, stock and stock options were a major draw for
many. As the first outsider to invest for equity, Amram had negotiated an
especially good deal. He got 100 percent of a new class of Series A Senior
Preferred stock, with special rights that would prove important years later.

For those, he paid the company 20 cents apiece. Most of the other early
employees and investors got Series A Junior Preferred stock. Amram got
1 million of those as well, direct from John Fanning, at the surprisingly

( 106 ) JOSEPH MENN

low price of 2 cents each. When all the transactions closed and the dust

settled, sales by Fanning and the company left Fanning with 4.9 million
Junior Preferred shares, Shawn with 3 million, Chicago financier Jim
Gidwitz with 896,000, and Bales with 733,000. Richardson, Adrian
Scott, Aydar, and Chess.net consultant Brian McBarron brought up the
rear, while Parker and Ritter got only options. (Later they got stock as
well. Both Shawn and Parker would sell some of their shares to other

investors, buying Mazda RX-7s with the proceeds.) Fanning remained

chairman of the board and was not shy about giving advice to Richardson
and the others. And he had the power to back up his words, since he still

had enough shares to veto any new class of stock, which would be the
standard method for bringing in a venture-capital firm.

One of Kessler's first hires was contractor Daphne Dembo, a long-

time engineer and Amazon.com veteran who had a son about Shawn's
age. One of her first missions, in turn, was to hire still more people. In
that effort, she had no shortage of eager applicants. "I got five e-mails a

day from people willing to volunteer. I had never seen anything like that,"

Dembo said. Napster being what it was, the hiring boom produced what
she called "a most unusual collection of people."
More than one of the new staffers appeared to be transgender, and at
least one used first the men's bathroom and then the women's. Many were
under twenty-one and looked it. The sight of odd-looking employees was
so commonplace that when a few teenagers sporting Mohawk haircuts

were hanging around late one night, the Xtime employees in the adjoin-

ing cubicles thought nothing of it. Later, they were compelled to explain
their reasoning to incredulous local police: It turned out the punks were
exactly what they might have appeared to be to outsiders — street thugs
interested in stealing Napster's computers.

There was one new Napster employee who admitted that he was sex-
ually obsessed with young boys. The confession disgusted the core people,
but they were just too busy to fire him. Better hires included senior mar-
keting executive Liz Brooks, a Bales recruit who had been director of

A&R, or artist and repertoire, at Sony and Virgin. Under her worked an
immensely built man named Mark Hughes, an M.B.A. who referred to

all the rave (107)

himself as "Chocolate Thunder." He was a solid worker but was valued
more for the comic relief he provided, which included decorating his
cubicle with Britney Spears and 'NSYNC posters and displaying an
assortment of teen-idol figurines. "It reminded me of high school," Bales
said. "People really enjoyed their popularity, regardless of whether or not
there was any substance to their person." As the team worked late into

the night, often sleeping under their desks, some would sneak off to the

roof to smoke pot or just stare at the mountains nearby, marveling at

the world.

Despite Richardson's presence and the increasing number of Silicon

Valley pedigrees, it sometimes appeared there were no grown-ups in
charge. One day. Bales took Shawn, Parker, and Ritter to look at a house
where they all might live together. But the real-estate agent pulled Ritter

aside and told him that his credit record was the only one of the four that
qualified, and he balked at signing the lease alone. There would be no
MTV-style house to throw parties in. The foray wasn't a complete loss,

however. Bales asked the real-estate agent if she knew any finance execu-

tives looking for work, and she produced the experienced and grand-
motherly Lyn Jensen, who became Napster's first CFO and one of its

steadiest hands. Everyone made his own living arrangement. Shawn and
Parker moved into a nondescript two-bedroom apartment nearby. For a

long time, there was no fiirniture inside except for a mammoth television
set. "I don't know if we ever used it," Parker said. "We were too busy."
In San Mateo, the crew worked late, often ordering Italian food from

a restaurant named Amici's. "Fun, early on, was going to 24 Hour Fitness
at two in the morning and lifting weights," Shawn said. "I tend to be
obsessive, so if I could get enough work done during the day, I would
reward myself by going to the gym." Even when he had time to explore,

Shawn said, "it's really hard to find a scene out here that's not a bunch of
geeks." Instead, after some long programming sessions, the young men
blew off^ steam with drinking games, throwing bottle caps into each
other's beers. The habit of smoking marijuana upstairs became more reg-
ular after the crew discovered that the Amici's delivery boy doubled as a

drug dealer. On request, he began hiding pot under the plastic prop in the
middle of the pizza that kept the lid from being squashed down. Like
average teenage pot smokers, instead of the founders of one of the biggest

( 108 ) JOSEPH MENN

Internet brands in history, the Napster gang developed an inside joke that

began with asking the delivery boy if he could bring anything that would
go in a bowl, referring to a pipe. Soon, they just asked him to bring soup.
Most smoking was done on the roof, but once it went further, with Bales
and Parker slipping into an office and closing the door. A telltale odor
seeped out. "The entire office reeked," said Ritter, who admitted taking a
hit himself After a second incident, both Ritter and Shawn told Parker
never to smoke dope in the building again.
The lack of a life outside the office also led to more than one
romance, another classic side effect in the start-up world. Richardson had
worked at Xtime since August, and she thought she could continue there
while helping Napster. For about six weeks, she did. But Xtime, which
was growing by more traditional means, wasn't nearly as much fiin. And it

didn't help her complicated relationship with Lee when he hired a volup-

tuous and sweet young recruiter named Jessie Garrehy. Lee began dating

Garrehy, who also helped Napster's recruiting efforts. A messy and emo-
tionally wrenching love triangle followed as Lee saw both women.
Richardson had some rough days, and after one last misstep on Lee's
part, she finally told him she was leaving Xtime to work exclusively at

Napster. "I was still loyal to John, really, but I'm an extremely competitive

person. I decided Napster was going to be a success no matter what," she

said. By Thanksgiving, Garrehy had broken it off with Lee, too, and
begun to date Ritter, whom she found brilliant and warm.

One thing Napster obviously needed in a hurry was a topffight

lawyer. Seth Greenstein, who had provided the legal logic behind the
company's copyright defense, was in Washington, and he didn't do corpo-
rate work. Fanning had found Greenstein through a chain of referrals

that started with one of his first calls, to inteUectual-property and tech-
nology specialist Andrew Bridges, of the premier Silicon Valley firm of

Wilson Sonsini. Now that Napster had moved west. Fanning urged
Richardson to hire Bridges, since he'd already laid the groundwork.
Richardson knew others at the firm, which represents as many as half of
the top companies in the Valley. She went in to meet one of her contacts
and explained what Napster was about, and the lawyer seemed excited.

all the rave ( 109 )

He said he would check with the intellectual-property lawyers and get
back to her. After some days passed, Richardson tried again but learned
that Wilson Sonsini wasn't interested.

She was floored. How could they turn down such a hot business,

especially when Fanning already had a relationship with Bridges? She

asked Amram and others if they knew had gone wrong and found out

that one of the very first articles written about Napster, appearing on the

ZDNet technology- news website in August, reported that Fanning had

"hired the firm of Wilson Sonsini," even though Bridges had turned Fan-

ning down. When the article appeared. Fanning called Bridges to deny

having made the statement. Bridges thought the whole thing was unpro-
fessional. Richardson blamed Fanning for the ZDNet story and felt she

had looked foolish in approaching the firm without knowing the back-
ground. "That was the first time I ruined my reputation for Napster,"

Richardson said. "That's when I should have quit." Napster ended up

with a decent law firm, Fenwick 6c West. But there would be no Andrew
Bridges.

As THE HIRING SPREE ROLLED ON, Napstcr's board moved on its other
top priority: raising money from angel investors. The obvious place to
start was Ron Conway, head of Angel Investors LP and a Silicon Valley

celebrity. Amram got the ball rolling with an October 7 e-mail to Con-
way and his partner. Bob Bozeman. "Napster, with its proprietary Music-

Share technology, is pioneering a new way for music listeners to reliably

find, share and download digital music over the Internet. Recently, 'MP3'
has replaced 'sex' as the most searched-for term on the Internet," Amram
wrote. After recounting the past problems with broken links and the
breakthrough of having one giant, continuously updated mass library of
music, Amram wrote that Napster already had two hundred thousand
registered users offering 3.5 million files. All of that, without having
spent a dime on marketing. "I think this would be an exciting opportunity
for Angel Investors. The angel round seems to be highly oversubscribed,
but if you move quickly I would like to try and get Angel Investor's [sic]

in." It was a pitch perfectly geared for Conway —the company is growing
fast, it's on the Internet, and other investors want in. Better move fast.

( 110 ) JOSEPH MENN

Richardson met Bozeman and gave a forty-five-minute presentation. He
was ready to write the check before she was done.
It was a route that many other companies had taken and, at the time,

a promising one: A mysteriously large number of Conway's angel invest-

ments got larger venture fiinding down the road. Yet by late 1999, it

seemed remarkably easy to get a blessing from Conway — an unimposing

middle-aged man in glasses who came across more as an agreeable frat

boy than as one of the most important men in the Valley.

Conway's technology career started right after college, when he went
to work for chip manufacturer National Semiconductor Corp., soon
emerging as head of sales for the company division that sold chips to car-
makers. Denied a raise, he left for a nine-person start-up called Altos
Computer Systems, where he went on the road making sales calls. When
the company went public in 1982, Conway's 2 percent stake was suddenly

worth $5 million. Three years later, as Altos was slumping, Conway quit,

spending his time on charity efforts and advising other start-ups, always

taking a piece of the equity for his services. After briefly returning to
Altos and helping sell it to another firm, a deal that netted him $2 mil-
lion, Conway was itching to get back in the game full-time. He bought a
majority stake in a computer-instruction firm called Personal Training
Systems, took over as CEO, and resolved to either make it big or sell it.

Building the struggling company proved hard, but at long last, as the

company was running out of money, Conway pulled off another lucra-

tive sale.

While trying to peddle Personal Training, Conway came in contact

with more and more rising Silicon Valley stars. One was Kim Polese, a

core developer of Sun Microsystems' Java programming language. He

thought she was an up-and-comer, and when he read that she was start-
ing a new company named Marimba Inc. he pestered her with uninvited
advice for more than a year until she relented and allowed him to invest

in the company's second financing round alongside VC kingpin Kleiner

Perkins, which had backed Sun, Netscape, and Amazon.com. "He was
very pushy," Polese told author Gary Rivlin for his 2001 book about Con-
way, The Godfather of Silicon Valley. But he was pushy "in an inoffensive

way. In fact, in a rather charming way. That he cared about the human
side was very clear." In fact, the human side was Conway's obvious

all the rave ( 111 )

strength. He was often described as a consummate salesman, someone
who quickly put others at ease.
Conway rubbed elbows at the Band of Angels, an organized group of
individual investors. In 1997 he struck out on his own, pillaging his

Rolodex to raise a $4 million fund to invest at $200,000 a pop. But as he

met more investors with good ideas, it didn't seem like enough money. In
late 1998 he started over with Angel Investors, raising $30 million in

what seemed like no time.

Conway was surfing a rising wave of incredible returns for companies

that went public with no profits and speculative ideas, a wave epitomized
by the November 1998 IPO ofTheGlobe.com, a profitless enterprise run

by two photogenic recent coUege graduates providing free homepages and

chats on the Web. TheGlobe.com shares rose from $9 to $97 the first day,

spurred by day trading and chat-room hype. That day may have been the

nadir of rationality, the bottom of a shde that had begun with the 1995

IPO of Netscape. Netscape's main product was also free, the most popu-

lar Web browser, but at least it was a major innovation.

With TheGlobe and its ilk, the traditional due diligence performed

by angel investors and venture-capital firms became completely passe.

With ridiculous companies making billionaires out of entrepreneurs and

those lucky enough to get in early, it didn't matter whether there was a

sound idea at the core or not. The rational thing to do was get into as

many companies as possible as soon as possible, wait for the IPO, then
sell and make a bundle. Just like the economics of the record industry, you
needed only one monster hit to make up for a hundred no-shows.
Such lack of scrutiny made for some appalling companies. While
there are now hundreds of examples, it is worth recalling a few for the

sake of context. There was Pixelon, which claimed to have a new system
for transmitting video over the Web. In fact, the firm's top-secret locked
boxes guarded off-the-shelf goods bought from other companies. Michael
Fenne, the entrepreneur behind Pixelon Inc., raised $30 million from
investors, none of whom bothered to get a routine records check, which
would have shown that Fenne was not what he claimed. He was actually

one David Stanley, a fugitive from a Virginia embezzlement charge.

( 112 ) JOSEPH MENN

What really set Pixelon apart, though, was what it did with the money it

raised. Fenne blew more than half of the take on one of the largest parties

Las Vegas had ever seen, hiring performers such as the Dixie Chicks,
Tony Bennett, and the Who to play. The concert was recorded, theoreti-

cally to be made available to Internet viewers for a fee. Instead, it became

a good-bye party. The expenditure prompted a board inquiry that led to
Fenne's ouster, eventual exposure, and arrest.
Another Internet video firm that qualifies as a paragon of the times
was a Santa Monica firm called Digital Entertainment Network. DEN
made it as far as an IPO filing on the strength of venture money from
Microsoft, Intel, and Dell Computer. The plan was to offer series of

videos for niche teen audiences unserved even by obscure cable television
channels. There were a number of fairly serious problems with the idea,

including the fact that studio production is exorbitantly expensive and the
reality that Internet consumers weren't ready to spend money for much of

anything besides pornography and stock trading. The idea of supporting

such costly programming with advertising money was likewise ludicrous.

Beyond those issues, DEN had a rather delicate management problem

that a cursory check by the directors should have flagged. The founder
and chairman of the firm. Marc Collins-Rector, was living with two of

the company's top officers. One had been his sexual partner since both
had worked at early Internet service provider Concentric Network Corp.,
when the partner was sixteen. The other, a good-looking ex-Disney child
actor named Brock Pierce, moved into the house at age seventeen and
was paid a $250,000 salary for unspecified duties at DEN. Even after a

former Concentric employee filed suit alleging that Collins-Rector had

molested him at age fourteen, DEN survived. "I knew it was the ultimate
Internet scam, but I figured I could flip the stock in six months," one

executive explained, neatly summing up the era's prevailing work ethic.

Only after the Los Angeles Times reported that Collins-Rector had been
living with Pierce since before Pierce reached the age of consent and that
other young DEN employees had been pressured to take social trips with
the trio did the company collapse, filing for bankruptcy as the three men
fled the country. Collins-Rector was arrested in Spain in the spring of

2002, and the United States began extradition proceedings over federal
sex charges.

all the rave ( 113 )

 Those cases were extreme. Most dot-coms were not criminal —they
were just incredibly stupid ideas suddenly flourishing like weeds in an
untended lot. More typical was Pets.com, funded by Silicon Valley's

Hummer Winblad Venture Partners. Pets.com was the first online

pet-supply store to make a national splash, in August 1999, but the battle

was joined within months by PetSmart.com Inc., and brick-and-mortar-

backed Petopia and Petstore Inc. A shining example of the grow-at-any-
cost mantra espoused by one of its investors, Amazon.com, Pets.com
blew an astounding $27 million on advertising in one year yet managed
only $5.2 million in quarterly sales before an overpriced IPO that sent its

stock out over a clifl" and down. That collapse wasn't much of a surprise,

since the sales Pets.com did close were at a loss. In retrospect, perhaps
shipping twenty pounds of kitty litter by next-day mail at a deep discount
wasn't the most sustainable of business plans, even if pets can't drive.
Pets.com shut its virtual doors in November 2000, with its omnipresent
sock puppet as one of its most valuable remaining assets.

The dot-coms as a whole were little more than a publicly supported

pyramid scheme, built on the long-true presumption that an even dumber

investor was just down the road. With more finesse, Kleiner Perkins' John
Doerr called the process "the largest legal creation of wealth in the history
of the planet." And Ron Conway had the perfect strategy for taking

advantage of the situation. At the height of the boom, as professional

investors saw it, the entrepreneurs held aU the high cards. If you asked too

many questions or dawdled too long, they could walk down the block and

get cash from someone else. Conway didn't dawdle. He used his prodi-
gious network, always pressing for the latest gossip on what was hot and
then investing quickly. Then he worked the all-too-receptive media to

hype his finds. Sometimes, he tried both tacks at the same place. One of
Conway's investments was in Red Herring, a San Francisco magazine cov-
ering the venture industry Conway would give editorial director Chris

Alden, who was an Angel Investors limited partner, an update on the

fiand's new investments. Then he would walk down the hall and pitch the

magazine's news staff on his start-ups.

( 114 ) JOSEPH MENN

 Silicon Valley investors lived in a clubby world, where personal
relationships were paramount. Many VC firms wouldn't even look at a

business plan unless the author had been vouched for by someone the
firm knew, like Conway. What Conway did best was institutionalize the
relationship process. He looked for who else was going in on a deal, then
followed suit, sometimes with only a two- or three-sentence description
of the product. The important thing was the pedigree of the managers

and the other investors. If they were good enough, they should be able to
get a later VC round. And if they got that, the odds were they could go
The actual product or service was irrelevant. And the more start-
public.

ups Conway backed, the more people came into his orbit that he could
pump for information. He became "the human router," in the words of
Netscape founder Marc Andreessen, who took Conway's money for his
infrastructure start-up Loudcloud Inc.

Conway mixed extra allure into his operation by making Hollywood

connections, then bringing them to his Atherton house for charity events.
That was easy enough: The entertainment industry's stars and producers
were tired of getting upstaged by this newer, richer, and sometimes flash-

ier elite to the north, and many of them wanted a piece. Red Herring pub-
lisher Tony Perkins introduced Conway to top agent Jeff Berg of
International Creative Management. Before long, Hollywood stars Matt
Damon and Ben Affleck, who were funding an Internet start-up of their
own, auctioned off an evening with themselves at a Conway bash.
Most investors didn't put money in Conway's funds because of the
star power. They put money into the funds, if they could get in, because it

was the easiest way imaginable to make a killing. Steve Bennet, a

software-industry consultant who taught a class on getting financing at

the University of California, Berkeley, invested after Angel Investors'
Bozeman spoke to his students. In retrospect, he said the problem with
Conway's scattershot model was that "it only works as long as things are
going up." With hundreds of firms getting Conway's money and only
three other general partners running the flind, the whole thing would col-

lapse if the mania stopped and the firms couldn't go public. "There's no
way they can manage many companies," Bennet said. Of course,
that

that's exactly what happened. By the fall of 2001, the $150 million flind

all the rave ( 115 )

that Angel Investors raised two years earlier, Angel Investors II, was
worth 50 cents on the dollar, according to confidential estimates that
Conway gave his limited-partner investors.

But back in October 1999, getting Conway's fund on board was the
first step for Napster to convince venture-capital firms that it was the real

thing. And Conway and Bozeman told confidantes that Napster was the
winner in all of Angel Investors II, the one that would multiply the fund's

total investment many times over. Starting in late 1999, as Napster raised
its second, or Series B, financing round, and taking two more bites the
following year, Conway's fund spent $1.5 million on Napster stock. For
months, he stayed away from the company's business. But twice in the
future, when Napster's survival and his investment were at stake, Conway
would come riding back.
Strategically, Conway's initial $250,000 investment was the most
important piece of the $2 million Series B round that Napster closed in

December at 80 cents a share. The other major financial participants were

Korean investor Sung-Bu Kim, for whom HoUy Shin had worked; Eddie
Kessler; Excite executives Graham Spencer and Joe BCraus; Chicago
financier Gidwitz; and Amram. Smaller amounts were sold to John Lee,
Bales's friend Adrian Scott, and others.

A NOTABLE ABSENCE WAS Draper Atlantic. The Virginia venture firm had
won the right to invest at 20 cents a share in August, when it loaned
Napster the emergency $50,000. But then it passed on the Series A round
that brought in Amram and Richardson, largely because Fanning was still
in charge, Amram said. But Draper's agreement with Fanning had been
worded so poorly, from Napster's perspective, that Draper felt it still had
the right to invest later at the same low price. "Our understanding is that

we have the right to invest up to $500,000 at the Series A price of $.20,

or 2,500,000 shares," Draper managing partner Jim Lynch wrote to

Amram in December, during the Series B round. Amram was not happy:
That would have amounted to the entire Series B round at a 75 percent
discount. So Lynch offered Amram an alternative: He would swap the

current purchase right for a warrant to buy just 1 million shares, still at 20
cents, at any time over the next three years. By that time, Lynch hoped,

( 116 ) JOSEPH MENN

Napster's legal worries might have been resolved and the company might
have gone public.
Amram was stunned. "They were trying to string us along and retain
the option, sitting on the sidelines. They didn't want to be associated with
it because of John Fanning and the copyright issue." A half hour after

Lynch's offer, Amram replied, copying Fanning, Richardson, and Tim

Draper of Draper Atlantic's much bigger affiliate, the Draper Fisher

Jurvetson firm in Silicon Valley. "Jim: I think we are miles apart," Amram
began. "The company does not believe we have an agreement that was
ever executed between DA [Draper Atlantic] and Napster. Even if there

was one, according to the alleged agreement DA had the right to partici-
pate in the financing offering but chose not to do so." Amram said he
could offer only $25,000 worth of shares at 80 cents, or perhaps at 20
cents, if he could legally do so without tripping over antidilution provi-
sions protecting the Series B shares already sold.

Tim Draper didn't appreciate getting put in the middle. "Either don't

involve me, or get me the documentation if you want me to mediate,"

Draper wrote in an e-mail to all sides. "It is the first time in 11 years of
working with Jim Lynch that he has gotten this kind of grief for a deal, so

signs point me at the entrepreneur."

The saga continued through the Series B and into February, when
Amram tried to end it once more as the stakes rose. "Napster is beginning
to approach [venture firms] for our next round next week and I think that
having to discuss the DA history will not be beneficial to either of us,"

Amram wrote, relatively cordially. He was right about that: Reasonable

VCs would be less eager to invest in a company with a large chunk of
ownership stiU in dispute. Sensing a timing advantage. Lynch stuck with
his most recent offer, warrants to buy four hundred thousand shares at 80
cents over the next five years, or 2 percent of the diluted stock. Amram
came back with an icy rejection. "I guess we aU have our own judgment
and standards that we live by," he wrote, offering half as many shares.
Without a deal, he said, Napster might sue and launch a public-relations
war. And, Amram suggested darkly, individuals might sue Draper and its

principals personally for defamation, misrepresentation, and "usury laws

and unconscionable acts (I will let your imagination continue here)."
Amram heard no response for nine days. When he asked why. Lynch

all the rave ( 117

was quick to the point: "1. We don't respond to threats. 2. After dis-

cussing the situation, in detail, with Tim, our offer to resolve the matter

has been withdrawn." Improbably, John Fanning now urged escalation.

"They called your bluff," he wrote Amram. "Now we have to draft a com-
plaint." Napster was hardly in a position to initiate new lawsuits, and it

didn't, leaving the matter to fester for more than a year. Every time Nap-
ster closed new financing, it had to disclose the unpleasant experience

with its first flinder. While the dispute was never revealed to the public,

gossip got enough circulation in the venture world that one enterprising
investor later approached Draper Fisher and offered to buy Draper
Atlantic's right to invest. Lynch declined to discuss the experience beyond
this statement: "We have an investment right in Napster. It may be the

best investment we've ever made. It may be the worst. Either way, it may
be the most noteworthy."

( 118 ) 30SEPH MENN

 fame

AS CRAZY AS IT WAS FOR SHAWN FANNING AND THE OTHERS

in the fall of 1999, the period provided many of the high points in their

adventure. John Fanning stayed in Hull most of the time, reappearing

mainly for board meetings. Nobody had sued anybody, and perhaps they
wouldn't. And no matter hovv^ messed up the business side of the
company was, the engineers managed to teach themselves just enough
new tricks to keep the system from collapsing as the number of users

soared into the millions. The crew was beginning to have a tough time

imagining what could stop Napster from becoming the fastest-growing

business in history. When there was time for fun, it was serious fun: The
Napster-sponsored rave in October was just one of the temporary escapes
from reality.

It was after another chemically enhanced rave that Shawn and Sean
Parker returned home and flipped on MTV. They caught a few seconds

( 119)
of a news update about Napster —the first time they had heard the name
of their company broadcast. "We weren't sure that we'd really seen it,"

Parker said. "We were pointing at each other and rolling on the floor.

Practically all my dreams were playing out before my eyes." There were
other causes for celebration inside Napster's offices. One of the best
nights was in November 1999, when Ritter's team found a bug that had
been keeping a Ud on the amount of traffic on a single Linux server. For
months, the number of users simultaneously connected to a server
couldn't rise past a thousand. The problem was both a frustrating techni-

cal challenge and a serious issue of expense, since it meant that Napster

had to buy more and more servers to keep up with demand. After the
team finally figured out was wrong and replaced the bad code in the ker-
nel, it was like wrenching the valve off" a fire hydrant. The number of
users and songs listed on a single computer doubled immediately.
Another night, the fourth version of Napster's search engine once again

doubled the amount of traffic each server could bear. Ritter, Shawn, and
Ali Aydar blasted rapper Dr. Dre and danced on the tables, mugging for

each other's cameras. Ritter called Jessie Garrehy to come join them, and
she drove to the office in her pajamas.
The Napster youth named the servers after bands, appropriately

reflecting the temperamental machines' personalities. Pearl Jam, Nirvana,

and Radiohead all had their strengths and weaknesses. And in the e-mail

signatures automatically appended to their messages, the employees said a

lot about what they saw as Napster's role in the scheme of things and
their roles within Napster. Shawn didn't use a signature. Parker used a

stamp that identified himself as Founder. Ritter's and Richardson's read:

"Napster —Music at Internet Speed." Many had Che Guevara screen

savers on their PCs, and the hours many kept were rock-'n'-roll erratic,

often starting at midday and running past midnight.

Napster's employees were far from the only ones in Silicon Valley

who thought they were part of a revolution — it's just that they were
among the precious few who were correct. Dot-commers sold groceries

online, electronically coordinated weddings, and gave away free Internet

access, and they all thought they were changing the world. The year after

Napster's birth was the peak of the Internet frenzy and all the hype that

went with it. And the hype was key. Perhaps no profession in those heady

( 120 ) DOSEPH MENN

days was as overstuffed as that of the public-relations specialists who tried

to outshout or outflirt each other into the minds of the nearly as alarming
number of new technology journalists. Many PR pros straight out of col-

lege —some of them hired by start-ups that had yet to find a CEO
would harangue reporters even at tiny websites with offers of hot
exclusives. Often those stories turned out to be the release of version 1.1
of an unknown piece of software or a vague partnership deal in which no
money was changing hands. But the unprecedented amount of cash
poured into dealing with the press made sense at the time. Given the
speed with which angel and venture investments were taking place and
the slim evidentiary basis behind them, a clipping or two in a publication
that an investor had heard of —even a single sentence in such a clip-

ping —could make the difference between a multimiUion-doUar round of

fimding and the company's founders looking for work.
So it is aU the more surprising that Napster had no in-house public-
relations person at all until February 2000, well after the record compa-
nies' lawsuit. When a record-industry spokesman or executive would talk

to journalists and condemn Napster as sanctioned theft, communism, or

the work of the devil, the reporter would dutifiiUy call Napster for a

response. The secretary who picked up the phone at Napster would then
teU the reporter that no one was responsible for dealing with the press.
She would get a message to Eileen Richardson
—^would the reporter mind
checking back later to see if Richardson had responded? When there was
no response, the story ran without it. But Richardson had reasons for this

unorthodox approach.
In part she was preoccupied with other concerns, including hiring
executives, sorting out Napster's messy capital structure, and getting more
fiinding to keep the servers running. She also didn't have good answers to
the reporters' questions, since after reading up on the law, she was
increasingly worried that Napster would lose in court. And too much
enterprising reporting might turn up John Fanning's spotty background,
the lack of a business plan, or the antiestablishment ethic in the ojffice.

But mainly Richardson was sticking to the October strategy memo's

playbook: bob and weave until Napster had something serious to bargain
with. From early on, there was Uttle need for PR when Napster was
growing by leaps and bounds like the e-mail system Hotmail had, with-

all the rave (121)

out making any explicit marketing efforts. And the bigger Napster got

before the inevitable awakening of the sleeping giant that was the record
industry, the more leverage it would have to cut a good deal. If everything

kept going as it was, Napster would have an audience well into the mil-

lions, along with a database about music consumers' habits that far out-
matched anything the record companies knew about their own customers.

Napster would be able to teU Warner Brothers that the average person

who had Cure MP3s on his computer was most likely to be interested in

finding new music by the Violent Femmes. Oh, and here are all those

users' Napster sign-on names if you want to reach them. In the best-case

scenario, the deal would turn out to be a Trojan horse that would make
Napster even more powerful, at least according to the October memo. So
when the Recording Industry Association of America called, appoint-

ments were made and then broken. Conversations with the other side

were ostensibly cooperative but kept noncommital, both to forestall a suit

and to prevent the RIAA from learning more about the way the system
worked. And reporters were fed platitudes. "My initial plan was to stay

under the radar and play dumb," Richardson said.

When a story did break, being one of the few start-ups without PR
helped perpetuate the sense that Napster was a true underdog, appealing
all the more to its fan base. "It was David versus Goliath, and we had
David," Richardson said. She was smart enough to put Shawn forward as

a spokesman. He came across as soft-spoken, intelligent, and good-

natured, an ungeeky geek, and his baseball cap became a recognizable

trademark. Even record executives found it hard not to like him. As

Shawn's popularity grew along with his service, the vast majority assumed
that he had control of the firm. With no disclosure requirements of the

sort binding publicly traded companies, Napster did little to dislodge the

misimpression.
Websites run by geeks and for geeks were the first to take note of

Napster and post stories with links to the site. Some of them soon
seemed to feature Napster every week. News sites that focused on the

music industry's electronic side or MP3s in particular also spilled digital

ink on the firm. One of the first broader-audience publications to write

about Napster was the online spin-off of Wired magazine known as Wired
News, which was following the MPS scene more closely than most. A

( 122 ) DOSEPH MENN

November 1, 1999, article on the website picked up on the piracy prob-
lem in a big way. "New music software that aims to make finding MPS
files easier may work a little too well," the article began. It quoted such

Napster fans as the head of ArtistDirect, a sales site for musicians like

Tom Petty, and such critics as CEO Dave Goldberg of music site Launch
Media Inc., who said Napster was "just a different way" of getting pirated
music. It also cited copyright lawyers who said that Napster and its users

could be in legal trouble. Even if Napster qualified under the Digital Mil-
lennium Copyright Act loophole for Internet service providers, it would
have to take down infringing music as soon as it was notified, they said.

The article also featured John Fanning, who identified himself as one
of two cofounders, along with his nephew. Fanning called Napster "a
microcosm of what's happening on the Net." And Richardson laid out
her claim that Napster wasn't violating the law because it didn't host the

music. Indeed, she said, it was trying to encourage CD sales by exposing

people to new songs. Napster "is much more about community. We're not

interested in people doing anything illegal," Richardson said. Realizing

the legal position was tenuous, she stretched the truth at least twice. First,
she said, "We're going to follow all the laws to the letter, including the

Digital Millennium Copyright Act." And second, she said the company
was in talks with the RIAA. "We're committed to working with them."
As the number of Napster users neared a million, some journalists

figured out that its office mate, Xtime, a normal start-up with legal tech-

nology, a conventional CEO, and a press person, would be a useful place

to turn for access. They called Xtime spokesman Travis Murdock directly,

or sought opportunities to meet people at both companies simultaneously.

One such event was a joint Napster-Xtime marketing-and-recruiting
party thrown at the Bubble Lounge, a swank San Francisco champagne
bar nestled between the Transamerica Pyramid and the hipster hangouts

of North Beach. Strange as it may seem years later, many people in those

days saw parties as a perfectly legitimate means of conducting corporate

business. For recruiting in conditions near full employment, it helped to

show prospective workers that their future colleagues were fun. For public

relations, it was an easy way to reach a lot of reporters with their guards
down. And, of course, the people monitoring the companies' spending
weren't exactly in a state of high alert: hence the rise of celebrity-emceed

all the rave ( 123 )

affairs and extravaganzas like the launch party thrown by revenue-

deprived Respond.com Inc., which handed out full-size bottles of Veuve

Clicquot champagne to all attendees.

At the Bubble Lounge that night, most members of the press in

attendance listened to a few sentences about Xtime. What they really

wanted was Shawn, and Murdock had assured many in advance that they

could have some time with the wunderkind. After a while passed with no
sightings of the prime attraction, Murdock went around looking.
Alarmed to learn that he wasn't even in the building, Murdock asked
some Napster executives and learned the harsh truth: Shawn wasn't com-
ing, for the simple reason that he wasn't even close to twenty-one. If he
was going to be in a bar, it sure as hell wasn't going to be with half the

area's technology press assembled as witnesses.

In mid-November, the digital music magazine Webnoize said the

RIAA intended to sue Napster. Wired confirmed the report, citing an

RIAA spokeswoman who said the trade group had repeatedly sampled
what was available for download on the service and found that "virtually

all file traffic is unauthorized." And spokeswoman Lydia PeUiccia aU but

called Richardson a liar for implying that she was negotiating. "We made
several attempts over the last few weeks to communicate," PeUiccia said.

"Our urgent requests for a meeting were not taken seriously. We really

had no other option but to file litigation."

Richardson retreated into "aw shucks" mode. She said that the threat
of a lawsuit was unfair, since Napster hadn't officially launched yet and
was just beta testing. "We are freaking four months old," she complained.

Wisely, she stuck to strategy and refused to say how many users Napster

had, since the figure would totally undercut the posture of a little start-up

under attack by a mammoth industry. The pose helped recruit legions of

Napster evangelists, who filled Internet message boards and chat rooms

with anti-industry rants. Since many knew that musicians got a tiny per-

centage of the industry's take, they had an easy target. And with little

grasp of the law or Napster's history, the firm seemed like one of the
good guys.
The RIAA finally filed the lawsuit on December 6, 1999, in San

( 124 ) JOSEPH MENN

Francisco's U.S. District Court, and it painted a different picture for those

who took the time to read it. Filed by Los Angeles lawyer Russell Frack-

man and others on behalf of every major record company, the suit accused
Napster of contributory and vicarious copyright infringement. "In an
effort to ensure its users a safe haven for piracy, Napster promises and
delivers user anonymity, and even boasts that it does not maintain logs of

activity or other information that could be subpoenaed to reveal the iden-

tities of its users," the suit said. And whatever claims Napster made about
promoting the new music, "the sound recordings reproduced and distrib-

uted are not obscure recordings of unknown or unsigned artists. Quite the
contrary, nearly every hit song by every significant recording artist can be

found on Napster." In answer to the question of how Napster was profit-

ing from others' illegal copying, the suit said the company was planning
to attract advertising and investment money. "Thus, Napster is building a

business on —and seeks to profit from —the daily, massive infringement it

enables and encourages."

The industry came well armed with evidence. It showed how Napster
was involved in every step of the process, tracking when users logged on
and off and steering them to the desired file by artist, song title, and con-
nection speed. If a song disappeared because its owner logged off, Napster
would find another copy of the file and resume the download from there.

Worst of all, the company had bragged to users that they could "forget

wading through page after page of unknown artists." The suit attached a

list of a couple hundred songs available on Napster, including cuts by

Elvis Presley, the Beatles, Jimi Hendrix, Bob Dylan, and Bruce Spring-
steen. Since the statutory penalties for copyright infringement maxed out

at $100,000 per work infringed, two hundred songs meant at least $20
million in potential damages. If the court determined that each copy of a

given song was a separate infringement, the figure could reach the tril-

lions of dollars. To early inquiries about its defenses, Napster said mainly

that it hoped to settle.

Her protestations to the contrary notwithstanding, Richardson had

been expecting the suit. And she correctly predicted that it would put
Napster on the world map, teaching more teenagers and young adults
where to go for free hit music. The number of users on the system at the
same time grew from about 50,000 when the suit was filed to nearly

all the rave (125)

150,000 less than a month later, at the end of 1999. The number of songs
available quadrupled in roughly the same period, to 20 million. And
the more songs that became available, the more incentive there was for

new users to come. Napster was turning into the perfect technological
snowball.

Inside Napster, the company's haphazard start devolved into galloping

chaos. "All of the resources on the technical side went to keeping the

servers up and running," Sean Parker said. "On the business side, every-

thing was reaction. There was no time to recognize that there was some-
thing awry with the way the business was being run." Before long, the

dysfunction at the top began bothering many of the original crew. At

board meetings, Richardson clashed so badly with John Fanning over
strategy, funding, and other matters that shouts and curses were
exchanged, leaving Yosi Amram trying haplessly to smooth things over.

The result was often a paralyzing standoff.

Shawn and the others compared notes. They accepted the flindamen-

tal hard-line approach against the industry, but there was little progress

toward getting new executives, serious funding, or big-business allies. For

the kids, the power struggles and lack of direction combined with their
desire to lead by themselves, Ritter said. "Shawn Fanning aside, everyone

had delusions of grandeur. [Vice President Bill] Bales thought he was

God. Parker thought he could do better. And everyone knew John Fan-
ning was poison."
Shawn, Parker, and Bales talked about quitting en masse and starting

over, perhaps incorporating a new company as Napster.com Inc. All of

them were for it. "There were threats daily," Bales said. "Shawn was con-
stantly resentful that he only had 30 percent." Once, Shawn said of his

uncle, "How could he do this to me?" But the revolt always died at
Richardson's door. It hurt Richardson to refuse Shawn, but she told him
that he had turned over the rights to his creation, that legally he couldn't

leave and then do the same thing elsewhere. "Bill was a proponent, as was
Parker. It was me that kept saying no," Richardson said. "Ethically, I

couldn't do it. It wasn't right."

Shawn kept stoic about Richardson's rejections, for the most part. "I

( 126 ) JOSEPH MENN

was just waiting for it to be over with and go back to work," he said.

Besides, Shawn added, "we had this whole theory internally, the technical

people. That all these questions about the business model and the legal-

ity — as long as we keep focusing on the technology and keep making the

system better, it will pull through eventually, even if we make bad busi-

ness decisions, as long aswe keep the servers stable and have it growing.
That's what we know how to do, so we'll focus on that."
When new legal, corporate-structure, or financing worries came up,
Shawn would get distracted. Then he decided to stop bothering. "I finally
ended up saying, unless it affected whether or not we could afibrd to buy
a server to scale or buy a database server or something, I wasn't going to

pay attention."

As Napster's new users passed on the word to others, they also spoke

more and more to each other through chat rooms built into Napster's sys-

tem. Organized by such topics as Alternative or Pop, the talk included

both discussions about bands and a large number of questions about how
to use the service. As Napster had only about twenty employees by the

beginning of the year 2000, the company itself could reply to only a tiny

percentage of user requests for information. So it relied instead on senior

members of the chat rooms to guide other users. But as with open chan-
nels in Internet Relay —or Chat any minisociety with anonymity, no
rules, and a young median age — there were bound to be problems. Users

insulted each other, made sexual suggestions or racial comments,

"shouted" by writing in all capitals, or flooded the channels with continu-

ous streams of messages.

Shawn, Ritter, and Parker had seen plenty of that kind of behavior
before on IRC, even joining in the fray by knocking other people off
channels with secret programming commands. With so many new users

who could spread either positive or negative descriptions of their chat

experiences, the Napster crew decided to have as many of the chat rooms
as possible "moderated" by loyal users. It fell to Ritter, who also was serv-
ing both as head server engineer and as head of security, to manage the
process. The company couldn't afford to pay the moderators. But it could

entice them with the opportunity to test new versions of the system and

all the rave ( 127 )

with the prestige of being at least somewhere in Napster's hip hierarchy.

Napster staffers began watching the chat rooms and nominating the most
helpful participants for moderator status. Those moderators in turn nom-
inated others, and debates ensued in a new moderator e-mail list over
who was qualified to give advice on the system and who was vouching
for whom.

One recurring debate was whether chatters with backgrounds in the

more complex world of IRC were necessarily better than others. But as in

debates over admission in any self- selecting club, the discussions could
get petty. At times, one moderator would oppose electing anyone
sponsored by another moderator he didn't like. A code of conduct was
distributed on the moderator e-mail list, requiring them all to be both

helpful and circumspect. "As active participants in a revolution, you must

be conscious of what is and is not the concern of others," the document
said. "Internal Napster Inc. affairs are just that. You wiU not disclose

information about the workings of the clients [user-side programs],

including, but not limited to, the number of servers, server IP's [Internet

locations, or] new clients in test." Moderators also got the authority to

require users to change their on-screen nicknames from offensive handles.

In the way of the Internet, this led to prolonged arguments about users

who outsmarted the automated filters by using nicknames like "flulclkly-

lolu." On the moderator mailing list, some argued against all bans. "This

thread has kept me confused," a moderator named "interline" wrote. "I

understand the majority of you are against the censorship the riaa is try-

ing to force upon us. Is there a reason that we are banning 'badword'

nicks? . . . let's fight censorship, not start it."

The subject was one of the few among the moderators that prompted
Shawn to take a stand. "I totally dislike what is happening here," he wrote
on February 18, 2000, noting that the filters would catch the worst
abusers. "Are you telling me we have banned over 5000 people simply
because they have cuss words in their username (even legitimate swears?)
I'm sure the value of these users in terms of contribution to the commu-
nity far outweighs the fact that their usernames may be offensive."

Three days later, Ritter stepped in as the grown-up. "Censorship

sucks, but so do assholes," he wrote to the group. "I have personally

( 128 ) JOSEPH MENN

observed a /much/ greater likelihood of abusive activity from folks with
inappropriate nicknames. While I work, I generally sit with two or three
Napster sessions open, watching chat, often times having to intervene
because pussyeater' or assrammer' decided it would be neat to start flood-

ing curse words in a public channel." Since it was taking months to hire

enough trusted moderators, he wrote that "we have to seek additional

alternatives to make the job easier, and understand that lesser evils often

times still make reasonable solutions." Ritter and Shawn discussed the

matter flirther in private and compromised: Users with foul nicknames

would be prohibited from speaking in chat rooms, but could still swap
music. The desire for growth won out over complete dedication to propri-

ety, but not in an unreasonable way.

Participating in chat rooms at all could require the patience of a saint.

This three-way chat earned "Blaxthos," who didn't know he was being
watched, his elevation to moderator:

<Do85> do you know anything about the new mp3 players

<BLAXTHOs> which new mp3 players?

<Do85> the portable ones

<BLAXTHOs> oh heh
<BLAXTHOs> yea, there are lots of different kinds now
*Boydii7 (56K) [sharing 14 files] has joined.

<Do85> but do you think you could help me

<boyd117> I can help you

<boyd117> tell me whats wrong

<boyd117> I'm hear for you
<Do85> how do you transfer the songs you downloaded on to the mp3
<boyd117> I care for all of you

<blaxthos> well, usually, the unit comes with a serial interface cable

<Do85> I have that

<boyd117> that's not so hard

<BLAXTHOS> and a program to download mp3's to the unit

<Do85> and the software
<BLAXTHOs> then just hook the unit to your serial port

<BLAXTHOs> install the software

all the rave ( 129 )

 <BLAXTHos> and follow the prompts on the software
<boyd117> I think you should listen to me instead of the other person

they seem really dumb

<BLAXTHOs> each software is probably different, and I don't own a unit

personally

<boyd117> yeah I said dumb what you going to do

<boyd117> that's what I thought

<BLAXTHOS> boyd: instead of hurling insults, try to be helpful yo

<Do85> I have everything up and running its just that I don't know
how to transfer the songs I downloaded onto the mp3
<boyd117> i'm leaving now so cya all later

<boyd117> k then bye

*Boydii7 (56K) [sharing 14 files] has left

<BLAXTHOs> bye boyd

<BLAXTHOs> is there a manual that came with it?

<Do85> yeah

Blaxthos, a Lucent Technologies engineer named Brian Jacobs, hap-

pened to have been the thirty-seventh user of Napster and a friend of
Shaw^n's. But many other moderators v^^ere nearly that good.
Others were not. Some were themselves abusive, electronically muz-
zling users without cause from speaking in chat rooms or banning them
from the service. Sometimes the moderators just didn't know what they
were doing. In one painful episode, a moderator banned a range of IP
addresses that included not just the target, a racist Napster user, but a

number of innocents as well. One of them, a woman in Toronto, booted

up Napster with her ten-year-old child and was greeted by the message:
"Banned —RACIST." Days later, the child had some friends of various eth-

nic backgrounds over, and they tried again. Again, they were confronted
by the message, and the guests turned to their host in wonderment. The
mother eventually got a message through to Ritter, who discovered the
overlarge ban and hit the roof.

"I can't even imagine the horror," Ritter wrote to the moderators list.

"We will not have this! This could have been DISASTROUS from a PR
perspective — this is disastrous /anyway/." Ritter stripped the offending

moderator of his status, ordered checks on old bans, and changed policy

( 130 ) 30SEPH MENN

to reserve the ability for massive bans to the next step up in the commu-
nity hierarchy, the dozen or so administrators. The administrators
reported to a supervolunteer named Martin Lathoud, who served as the

manager of moderators, or MoM, and who took his orders from Ritter.

At times, disputes among the moderators would bump all the way up the

chain of the command until they were resolved.

A RECURRING FLASHPOINT WAS A seventeen-year-old Haverhill, Massa-

chusetts, high school student named Wayne Chang. Chang, the hacker
son of the owners of two Chinese restaurants, knew Shawn from his
earlier days as "Napster," the fellow hacker. He found out about Napster
the program early and took to it with a passion. After being made a chat-
room moderator, Chang suggested to Shawn that the company also host

a message board on its website for discussions that would be open to

everyone, no matter what server and accompanying chat rooms they were
connected to. Shawn agreed and put Chang in charge of the message

board, which was visible to any Web visitor. That exposure put Chang in

an unusually sensitive position, since the messages posted by Napster

users included tirades against the record industry and open support of
piracy, statements that would come back to haunt Napster in court. In
one, a user wrote: "We all know it's illegal. We just don't think it's wrong."

And the messages sometimes included recommendations for Napster

competitor Gnutella, which Chang deleted.

Like many good revolutionaries, Chang feuded with others whose

devotion wasn't up to his standards. One frequent rival for the evangelism

crown was Rick Fletcher, who had been running an unofficial Napster
Frequently Asked Questions site on his own. The Napster FAQ_was
incredibly useful to novice users, and Ritter tried for months to get the

company to purchase the site and give Fletcher a modest salary. He suc-

ceeded only after another dot-com made a bid for Fletcher and his work.

Before that happened, and before Fletcher had made a dime from Nap-
ster for his efforts, he decided to make a little money by selling annoying
pop-up ads on the Napster FAQ_site. This outraged the puritans, and a
debate raged on the moderator e-mail list over whether Napster should

drop its link to Fletcher's unofficial page or take other action. Chang

all the rave ( 131 )

went even further in private, taking the argument to an administrator in

an IRC chat, which was how most sensitive Napster business was con-
ducted. "Napster himself isn't making any money off this, so why is rick

selling out?" Chang asked. "He's not selling out," the administrator

replied. Besides, "Napster makes plenty of money, if you're talking about

the person." Chang wouldn't back down, writing that "banners from the
site are unappreciated," and accusing the administrators themselves of

"cashing out." The administrator called Chang a "kiss-ass," and Chang

signed off with a cheery "okay sellout." When Ritter got wind of the
exchange in March 2000, he ordered Chang to drop the matter "or else."

Rick Fletcher and several other moderators complained to Lathoud

and Ritter that Chang should lose his moderator status for erratic behav-
ior. Once, Chang got carried away with the new, white color of Napster's
interface for users, which replaced the original black. Chang tried to get a

rise out of the moderators on the e-mail list by sending a message touting
"white power —^wayne of KKK . . . (even though im asian)." Fletcher

wrote Ritter in April that "more or less all the admins are really wanting

ttol [Chang's nickname] to be demodded," or demoted from moderator,

for posting information on unreleased versions of Napster, the KKK jok-
ing, and "near constant bad judgment calls."

And Chang angered Napster executives by showing up too often in

the press and saying the wrong things when he did. One incident occurred

after the release of Wrapster, a program that allowed non-MP3 files to

travel through the Napster system disguised as MP3s. Wrapster permitted

users to hoodwink the system and share anything else they wanted — text

documents, pictures, even movies. Since the bandwidth that Napster was
eating up already clogged the networks at many companies, the advent of
unrestrained video -swapping on such a scale could have caused such
havoc that the government might have been forced to intervene. Inside
Napster, executives decided to ignore Wrapster and hope it didn't get too

much attention. But Chang was ready with a quote, accusing Wrapster of
"ripping off" Napster and "taking it further." Chang finally lost his moder-
ator status. But with no one else paying as much attention as he had to

policing Napster's publicly accessible message board, the posters went nuts
in early May. An average visitor saw posts like "l JUST TOOK A SHIT" and
"why do jews have such big noses?" and felt compelled to write to

( 132 ) JOSEPH MENN

the company, begging for a new moderator. Ritter reinstated him, but
Chang was eventually demodded for good after he took privileges away
from another moderator. Napster lawyers later killed the entire moderator
program after America Online's similarly positioned volunteers sued that

company for back pay under fair-labor laws.

After the initial public attention following the RIAA's December

1999 lawsuit, Napster's growth became epidemic on college campuses
that offered free high-speed access from dorm rooms. Richardson had
thought Napster could prove to be the biggest case of viral marketing in
history. But she stiU had underestimated how fast word would spread in

academia. Colleges saw their networks clog badly. When they investi-
gated, they discovered that Napster was sucking up virtually all the avail-

able bandwidth. Typical was the University of California, San Diego,

where Napster's growth rate stunned the network administrators. "The
first effect of this saturation was that Napster became virtually unusable

to those on campus, but more importantly, this also slowed all campus
Internet traffic," the administrators wrote on February 1 to all campus
residents. "The use of Napster has now begun to impair the vital func-

tions (education, research) of our network to the point that some action
MUST be taken. At this point, the only option is to block access to Nap-
ster from campus machines." UCSD set the ban that day, and more than
a hundred other campuses followed suit, either because of bandwidth
issues or pressure from the RIAA, which was tracking copyrighted music
going to student machines.
The campus bans were hotly debated and provided irrefiitable proof
that Napster had become the fastest-growing application for the Net.

That drew stiU more media to the story, with the Los Angeles Times put-

ting Napster on the front page in February 2000 and the New York Times
doing the same in March. Closer to the hearts of the young men at Nap-
ster was MTV, which brought a crew to the office that spring and turned
Shawn and Parker into teen idols. Of all the media exposure that would
come, sometimes two or three national media interviews in a day, the

MTV segment proved one of the most difficult. Shawn was quiet and
sometimes awkward. It was the glib Parker who wound up with the most

all the rave (133)

airtime. But even he found it tough going. "We had to balance being

excited about it with having to represent the company well. You wanted
to have a personality and be seen as having a hot brand. But at the same
time, there was all this pressure to act respectable," Parker said. "It was
always a struggle. We were constantly censoring ourselves: Certain words

couldn't be used. A lot of it felt very forced. We hadn't developed a really

solid facade, and we hadn't really established who we were." The coverage

alerted even viewers in remote areas to the desirability and ease of use of
the program.
Napster didn't want any more enemies, so it largely stayed out of the

fight with universities over access to the system. Instead, it hoped that

students would do battle for it. "We can't help the fact that everyone lovez
Napster," one moderator wrote to his peers. "No worries, after they block

access to napster, they will hear about it from students/staff."

Many students, even those who had collected hundreds or thousands

of MP3s on their computers, merely grumbled. But at Indiana University,
where a ban took effect after Napster's consumption of campus band-
width neared 85 percent, a computer-science sophomore named Chad
Paulson did something about it. In early February, he started a group
called Students Against University Censorship and launched a petition
With Napster secretly paying the registration fee, he took the Web
drive.

domain name Savenapster.com. The petition quickly gathered twenty

thousand signatures and may have prompted Indiana, Yale, and other
schools to bring Napster back, though another factor was work on a more
efficient second-generation Internet system. A natural politician, Paulson
was effective because he used neutral language and criticized the universi-
ties in an area of historic sensitivity for them, casting the dispute as a

matter of free-speech rights on campus.

"Universities often overlook the student when making crucial deci-

sions such as the ban of certain Internet privileges," Paulson wrote on his
website. "Higher education in America should be free of censorship and
complete administrative control." In his press interviews, Paulson con-
ceded that many Napster users were looking for copyrighted material, but

he argued that the innocent shouldn't be punished along with the guilty.

Paulson was also honest when he said he wasn't using the system for
piracy himself A member of several bands while in high school, he used

( 134 ) JOSEPH MENN

Napster to look for live performances by independent bands that didn't
mind their music being distributed.
Paulson was featured in dozens of interviews from MTV to CNN as
a young spokesman for the Napster movement. Unlike those inside the
company, whose words were governed by public-relations and legal con-
cerns, Paulson could speak his mind. Napster adopted him as a virtual

poster boy, and Paulson had more than a dozen chats with Shawn, Parker,
and Napster product manager Brandon Barber. Paulson thought Napster
could evolve into an amazing promotion vehicle for bands that never got
big contracts. But Shawn and the others didn't spend a lot of time talking

about that, he said. They seemed militant about changing the industry as

a whole. "I had my own agenda, what I thought Napster would be great
for," Paulson recalled. "They had their own agenda, but they wouldn't tell

me what it was. They were like, 'This is great, we're really sticking it to

them.' I didn't really get it. They were definitely playing the role of victim,
but Shawn was more interested in breaking down the system and seeing

what happened."

As WITH ROCK MUSIC ITSELF forty years before, public opinion on Nap-
ster divided largely along generational lines. Older, more-established
Americans generally saw it as a clear case of piracy. Students and music
fans in their twenties often saw it as mildly illegal — or soon to be ruled

illegal —but morally fine, like exceeding the speed limit by five miles an
hour. Some of the more studious defenders pointed out that artists real-
ized very little money from their recording contracts or that compact-disc

prices were absurdly marked up. One student interviewed on MTV said

the amount of guilt he felt varied by the artist: He decided it was fine to

rip off a no-talent band, or one that was already wealthy beyond imagina-
tion. Others embarked on different varieties of philosophical hairsplitting
and rationalization. By the million, they were willing to take legal risks

and moral stretches that they saw as small, and some declared that they
would never buy another CD.
Among users under thirty, who would make up half of Napster's

eventual user base, the antiestablishment feel of the system dovetailed

with the rebellious posturing of much of the music they listened to. (For

all the rave (135)

the computer-sawy, it also fit the hacker and free-software ethics.)

Richardson figured that the best way to keep those fans as evangehsts was
to reach them through the people they admired most —the rock stars. If

enough big names weighed in on Napster's side, the record companies

would lose a lot of the weight behind their moral and political arguments,

if not their legal case. So she embarked on a sensitive campaign to get

endorsements or investments from top acts. She spoke secretly to

Madonna business partner Guy Oseary and to early online music enthu-
siast and Beastie Boy Mike Diamond, among others. Since many bands
were afraid to anger the record companies responsible for their promo-
tion, most of the discussions were never made public, and some rockers
who were supportive could do little to show their feelings. Napster posted

the public tributes it did win prominently on its website. Courtney Love,

Prince, and Dave Matthews all had quotes lifted from news articles. And
Chuck D of Pubhc Enemy went fiirther, writing in an April 2000 New
York Times op-ed piece that Napster was "a new kind of radio — a promo-
tional tool that can help artists who don't have the opportunity to get

their music played on mainstream radio or on MTV." Napster quietly

paid Chuck D $100,000 and made the most of his endorsement, offering
$5,000 for the best pro-Napster lyric written to accompany "donated"

music from Pubhc Enemy. Techno star Moby was also a big help, saying
that "most people I know who hsten to a lot of MP3s will download a lot

of different songs, and if they like the song they'll go out and buy the
album. The record company doesn't want me to say this, but out of the

millions of MPS files that are out there, if someone chooses to download
one of my songs or an album of mine, I'm very flattered." A key part of

the underlying debate, whether file-sharing has helped or hurt conven-

tional sales, has yet to be resolved. The federal judge in the major suit

against Napster would rule that it hurt, rejecting some surveys suggesting

otherwise.

Several unknown bands that had been through hell with their labels
cheered Napster on, in part because of serious thinking about the future
of the music industry and in part out of a desire for revenge. Michael
Lawrence, a Los Angeles musician who had been with a big label, wrote
to Napster that he was a new and enthusiastic user of the service. He
complained that his label had taken back 85 percent of the advance

( 136 ) JOSEPH MENN

money from his band's signing, leaving 15 percent to divide among the
musicians, their lawyer, their manager, and their producer, who had been
appointed by the label. Then it got worse. "The label put us on the road

and halfway through the tour a new president took over. Without notice,

they pulled all tour support and label advertising for new bands. . . . We
went broke trying to get home," Lawrence wrote. "Napster has the poten-
tial to put the power of art and business back in the hands of an artist."

The furthest Napster went to ally itself with musicians was sponsor-
ing a free Back to Basics tour in July 2000 headlined by Limp Bizkit. The
tour cost a whopping $1.8 miUion but helped spread goodwill, and
Shawn got to meet band frontman Fred Durst after the San Jose show.
But Napster also embarrassed itself by using a heavy hand against another

supportive band, a punk group called the Offspring. The band was one of
many that decided it had no problem with Napster distributing its music.

"The Offspring view MPS technology and programs such as Napster as

being a vital and necessary means to promote us and foster better rela-

tionships with our fans," the band wrote on its site. But it grew annoyed
that Napster had never asked permission. Cheekily, it decided to take its

support a step further, copying the Napster logo, plastering it on shirts

and caps, and selling the gear through its website. The Offspring figured

that since Napster was playing fast and loose with copyright law, it

wouldn't be in much of a position to complain. The group might not have

realized, however, that if Napster knew about someone else using its logo

and failed to get a signed agreement, it could have lost all rights to defend

the trademark elsewhere. Product manager Brandon Barber urged the

press team to tread lightly, perhaps putting out a humorous declaration of

shock and outrage. But the lawyers were by now in charge, and Napster
fired off a cease-and-desist letter to the band, demanding that it stop sell-

ing the products. Napster was duly mocked for the hypocrisy of the move.
After several days, the company and the Offspring struck a deal giving
the band formal permission to sell things, with all profits going to a char-
ity agreed on by Offspring singer Dexter Holland and Shawn. They chose
the National Center for Missing and Exploited Children.
The Offspring didn't know that it had stumbled onto another of the
odd business blunders at Napster, a mess that had its roots in the com-
pany's unprofessional beginnings and that would fester on through 2000.

all the rave (137)

Seeing the immense value of Napster's brand, several employees had sug-
gested selling logo shirts and other goods as an uncontroversial way to

raise money and promote the service. They also had wanted to give away
the gear to recognize hardworking volunteers, including the moderators
of the Napster chat rooms. Richardson had been reluctant to approve the
clothing plans because they got into the sticky area of profiting from the
service prior to a settlement deal. She felt that any revenue taken in

before the suit ended would be used against Napster in court, and she
was right.

One Napster moderator, Tarek Loubani, a Chess.net veteran and a

friend of Shawn's, asked Shawn if he could go ahead and make shirts on
his own. Shawn told him to go for it. Loubani, then a college student in
Canada, didn't want to make shirts with just the logo: He wanted some-
thing that would capture what he saw as the politics of the movement.
He made a series with revolutionary themes, including one alluding to
William Wallace, the Scottish rebel who inspired the movie Braveheart.
Another adapted the slogan of the French Revolution: "Liberte, Frater-
nite, Napsterte." Barber warned him not to sell the shirts at a profit,

which was no problem for Loubani. But when the company found about
the slogans, it decided it had another issue. "It was deemed by the higher-
ups to be too risque," Loubani said. "It really upset me." Eventually, the

company sent him a cease-and-desist letter. Loubani correctly figured

that the company had bigger worries than he, and he continued to

distribute several hundred shirts. "Maybe just because of Shawn's past, he

and some of the other people didn't find these copyright issues compelling.

I was one of them. I worked for the masses." As the rest of Napster

"became this inflated, corporate thing," Loubani dropped out of the com-
pany's community, one of many radicalized youths who grew disillusioned
as they realized that Napster was more and more about the money.
Shawn didn't give up on the shirt idea. As fans began clamoring for
merchandise on Napster's message board, he tried to press the point. In
April, Shawn e-mailed marketing VP Liz Brooks, copying Parker and

Barber on the message. "We NEED to get some Napster merchandise on

the site," he wrote, pointing them to the posted chatter. "This is crazy."

Brooks responded that she couldn't do anything yet, because she had been

( 138 ) JOSEPH MENN

waiting for Napster's board to sort out a dispute over merchandising
rights for three months.
It all went back to Napster's infancy, when John Fanning's neighbor,

marketing executive Tom Carmody, was seeking more compensation for

the help he was giving Napster. Fanning gave him permission to sell

Napster shirts on his own, keeping some of the profits and giving the rest

to Napster either immediately or after it felt legally safe in collecting it.

When Richardson learned about the deal, she asked Carmody to submit
a plan. Richardson said she got no details back from Carmody and so had
nothing to take to the board for a vote. Brooks shared Shawn's frustra-
tion. "I am and have been waiting on a decision from the board as to
what ownership Tom Carmody has of our merchandising rights," Brooks
wrote him. "Tom is ready to go, and I am also prepared to do an outside
deal with someone other than Tom, but this needs to be cleared up."
Despite Richardson's claim that Carmody had given her nothing to

review, a draft licensing agreement did emerge from Napster's files during
litigation, where it remained out of public view. (Richardson said in her
deposition that she had never seen it.) That agreement, which Napster
never signed, appears to conform to the informal arrangement Carmody
said he had with Fanning. Without any payment from Carmody, it said

Napster would give his firm. Summit International, licensing rights in

exchange for royalties equaling 20 percent of the revenue from goods sold
through Napster's website and 10 percent of the revenue from goods
sold elsewhere.

In May, Shawn sent Richardson, Brooks, and Barber yet another

message, forwarding along a T-shirt request from someone he admired. "I

deal with this ALLLLL DAY. Many of these people are talented engineers
at big companies," Shawn wrote. "I understand that therez lots of shit
going on, but what's the plan?" Brooks replied: "I have Tom Carmody
coming up on Wednesday to show me designs, ideas and deal structures.

BUT —I stiU need to know what our status is w/regard to his rights
and that is not my decision!!!!! I wish it were!!!!!!!! How can we move
ahead when there is an outside entity claiming the commercial rights to
our merchandise, and half the board supports him?"
While he knew that Carmody might have some right to sell mer-

all the rave ( 139 )

chandise, Shawn was shocked to hear that he might have exclusive dibs.

It was yet another thing that his uncle, the board, or both had done to

screw up the company. "You mean he claims to have exclusive rights to

our merchandise?????? No WAY!" he wrote to the executives. Richardson

tried to resolve the matter on the fly, replying the next day that there

wasn't any need for a board decision. "Tom Carmody has NO rights to

our merchandise, no contract, no commitment, no nothing," she wrote.

She said that in October, she had been willing to let him handle the mat-

ter, but that too much time had gone by since. Glossing over the problems
with taking in revenue, she suggested that Brooks take over the project
and develop a merchandising plan.

In the meantime, Carmody got tired of waiting for Richardson to

give him a yes or no. Figuring he had at least Fanning's support, Car-

mody decided to act on his own. "I just went ahead and did it," Carmody
said. "Did I nail it down in a contract like I should have? No." In June,
Carmody arranged for IndianapoHs merchandise firm Sport Service Inc.
to sell Napster brand clothing through a website called Napsterstore.com.
Some Napster fans found the site, and the company sold more than
$60,000 worth of gear, sending a cut to Carmody. Carmody said he put a
chunk of the money aside for Napster. In a little-noted case in December
2000, Napster sued Sport Service for trademark infringement, and that
company quickly pulled the plug on Napsterstore.

As Napster was lining up rock-band support, the Recording Industry

Association was doing the same. It pressed its member labels to get rock

and rap groups to come out against Napster, and some, like Peter Gabriel,
obliged. "The fiindamental point is: no music, no Napster. This is obvi-

ously a big business that was built by taking stuff without the consent of

the artists who created it," Gabriel said. "More and more people are going
to download their music, and if it all stays free and there is no control
over the payments, then it will be difficult for younger artists to make a

livelihood. . . . We would first like to be consulted before our stuff gets

taken, and [we'd like to] have some vote in deciding what's distributed for
free and what isn't." Rapper Eminem was more blunt: "I'm sorry; when I

( 140 ) JOSEPH MENN

worked 9 to 5, 1 expected to get a fucking paycheck every week. It's the

same with music; if I'm putting my fucking heart and all my time into
music, I expect to get rewarded for that. I work hard . . . and anybody can
just throw a computer up and download my shit for free. That Napster
shit, if that gets any bigger, it could kill the whole purpose of making
music. . . . I've seen those little sissies on TV, talking about [how] 'The

working people should just get music for free,' I've been a working per-
son. I never could afford a computer, but I always bought and supported
the artists that I liked. I always bought a Tupac CD, a Biggie CD, a Jay-Z
CD. If you can afford a computer, you can afford to pay $16 for my CD."
The record industry's biggest public-relations victory came in mid-
April 2000, when the long-standing San Francisco hard-rock group

MetaUica filed suit against Napster in federal court. MetaUica accused the
company not only of copyright violations but also of running afoul of the

Racketeer-Influenced and Corrupt Organizations Act, known as RICO,

through its repeated transgressions. MetaUica drummer Lars Ulrich said
the band had gone through "a grueling creative process" for each song
since its 1983 debut. "It is therefore sickening to know that our art is

being treated like a commodity," Ulrich said. "From a business stand-

point, this is about piracy —aka taking something that doesn't belong to

you, and that is morally and legally wrong." Richardson was quoted as
saying that the band had never tried to contact Napster. If it had, she

claimed, it could have learned about ways to "leverage" the Napster sys-
tem. Rap star Dr. Dre, whom the Napster kids liked even more than
MetaUica, also sued and demanded that his songs be removed.
The MetaUica suit, which named Indiana University, Yale, and the
University of Southern California as additional defendants, succeeded in
driving a wedge through Napster's supporters. But filing it was a costly

decision, image-wise. Even most MetaUica listeners sided with Napster,

proclaiming that the band had sold out years before, perhaps when the

members cut their hair. A few noted that MetaUica's popularity had been
built in its early days precisely through unauthorized tape-swapping. And
someone hacked MetaUica's site, leaving the words "Leave Napster
Alone." An ex-fan of the group launched KiUmetaUica.com and caUed
for a boycott of the band's products. The site was joined by MetaUica-

all the rave (141)

sucks.com, Screwlars.com, and Paylarstoshutup.com, which sarcastically
asked visitors to use an online payment service to make donations so the

millionaire rock star would go away.

Some hackers went even further. Probably the biggest contributor to

a wave of "Save Napster" hacks was sixteen-year-old Robert Lyttle of

Pleasant Hill, California, east of San Francisco. Lyttle, who used the han-
dle Pimpshiz, broke into more than two hundred websites and left a pro-

Napster diatribe on each. He also offered to patch the security hole he

had come through, for a fee, and ended with a cheerful "Hi Mom!"
Among his victims were sites run by NASA, the U.S. Army Materiel

Command, and the French Bibliotheque Nationale. Lyttle reached

Shawn and Ritter on IRC and told them what he had done for their

cause. The two looked at each other in horror. "Are you crazy?" Shawn
typed. Lyttle's run ended in December 2000 with a raid on his home. He
later pleaded guilty to two of the counts against him and was sentenced
to probation and ordered to pay restitution to the sites he defaced. He
said he planned to raise the money by selling Internet security services.

Others began to feel uneasy about their use of Napster. The most
important change of heart came from Chad Paulson at Indiana Univer-

sity, the head of Savenapster.com. Paulson had been listening to all sides

in the debate, and he had boned up on copyright law. He had seen the
press reports about Napster's moneyed backers, and he was angry about
what Sean Parker had told him on the phone. When Paulson first began
organizing, Parker told him that Napster wanted to promote new artists.

Yet almost nothing had been done on that score, while songs that were
obviously unauthorized were trading like crazy. When Paulson asked
Parker again about Napster's plans to support independent music, Parker
told him that wasn't a priority, Paulson recalled. (Parker denied saying

that.) Paulson also saw too many televised news reports that featured him
defending the service, then cut to arrogant students with hundreds of
MP3s by artists who weren't getting paid. He felt he looked like a stooge.

"I wasn't really thinking about user habits," Paulson said later. "I was kind
of naive, to say the least." Parker didn't help matters when he came to
speak at a digital-music conference held on Indiana's campus. The
teenager spent two hours huddled with a public-relations person who

coached him on what he should and shouldn't say Taking questions from

( 142 ) JOSEPH MENN

the audience afterward, Parker was coy to the point of appearing smug.
The rest of the time, Paulson felt, he was interested in being the guest big
shot at college parties. And Paulson reaHzed his politics were very differ-

ent from those held by many Napster fans. He got e-mails in support of

his campaign that he felt were Marxist in tone, including statements

opposing all property rights.
After a couple of weeks of talking about his concerns with Parker and
Barber and getting nowhere, Paulson wrote an open letter to both Metal-
lica and Napster on his website, explaining that his views had evolved.
"There are many kids out there today that do not respect the fact that

artists work long and hard to put out albums. They take quality music for

granted and they don't fully realize that even though a musician may be
popular and on the radio, it doesn't necessarily mean they are full of
money. Even if they are, there is no excuse to break the law, and copyright
infringement is breaking the law," Paulson wrote. "I saw much potential
with Napster, yet at the same time I had many issues on how Napster was
used as a haven for piracy, something that I abhor." Paulson said that he

"got to know more about the music business, as well as the Silicon Valley

way of doing things" and decided that "the company is knowingly facili-

tating the transmission of copyrighted material, and they are making a

profit from that without any crackdown." Napster was giving the MPS
format a bad name by disingenuously issuing statements against piracy
without doing anything about it. "I personally want to see a plan that

explicates (in detail) what the company plans on doing about the rampant
illegal use" that he estimated made up 90 percent of Napster's traffic.

Since Paulson had been newsworthy before, his about-face brought

even greater media attention. Napster employees were livid. Parker

phoned Paulson and called him a traitor as an employee screamed in the

background that Napster was a revolution that couldn't be stopped, Paul-

son said. Brandon Barber sent him a fiery e-mail: "I'm struggling to

understand your logic on this shit. Are you looking for new press angles

to support? . . . Your negative campaigning is the least of our press wor-

ries
— ^we have larger fish to fry. However, I think it's safe to say that the

sentiment around here is shock, disbelief and betrayal. On a personal

level, I vouched for your ass internally and now you've called my judg-
ment into question." Barber signed off, "It's a small world. Have fim."

all the rave (143)

 Wayne Chang, the seventeen-year-old self-appointed Napster standard-
bearer, went much further. To start with, he urged the company to sue Paul-

son for using the word Napster in his domain name. "Who the fuck does he
think he is?" he wrote to Barber. Then Chang did something else. He
hacked into the infrastructure company that was hosting Savenapster.com
and made Paulson's Web-hosting bill appear two months overdue. And
he hacked the site itself, adding a new story to the press section bearing

the headline I BACKSTABBED NAPSTER. Chang was proud of the feat,

and he e-mailed Ritter to brag. After suggesting that Ritter try to visit

the Savenapster site "while it's still defaced," he added: "I also changed

the pw [password] back on the shell, so chad won't think it's a server

problem. . . . ps: delete this message." Ritter stayed mum, and when Paul-

son complained to Napster about the hack. Barber wrote: "I give you my
word that no one affiliated with this organization had anything to do
with it. I apologize for what must be a very frustrating situation." Paulson

complained to the FBI, which was unable to solve the attack. In an inter-
view, Chang said he would neither confirm nor deny responsibility. Paul-

son later quit school and joined the small online music firm Listen.com,
then moved to Los Angeles to join Capitol Records' digital efforts.

The media around Napster hit a climax on May 3, 2000,

circus
courtesy of Metallica lawyer Howard King, who vowed publicly to shut
the service down. In a spectacle designed for the television cameras. King

and Lars Ulrich arrived at Napster's San Mateo office in a limousine

bearing thirteen boxes containing the names of hundreds of thousands of

Napster users who were offering Metallica songs. King demanded that
the users be banned from the service. With advance notice that Ulrich

was coming, Napster gathered its own supporters to appear. Several held

a banner that read "RIAA = Master of Puppets," a reference to the

Metallica album of the same name. Others obliged the cameras by taking
sledgehammers to Metallica's compact discs. Still more took advantage of
the heavy media turnout by bringing posters touting Gnutella or other

sites. The new generation gap got its loudest display when Ulrich spoke

from the podium. Protesters shouted at him to shut up and called him a

sellout. "Fuck you, Lars," offered one. "It's our music too!"

( 144 ) JOSEPH MENN

 Showing up with a lawyer was about the least "rock star" a move that

Ulrich could make, and from the moment he realized Napster was housed
in the decrepit building over a bank, he grew more and more uncomfort-
able. After pontificating outside, Ulrich and King went in with a dolly
hauling the documents up to Napster's offices. Xtime spokesman Travis
Murdock happened to be riding up in the old, creaky elevator at the same
time and saw that Ulrich looked miserable. When the doors opened at

Napster's fourth-floor office, the employees came up to him and told him
what fans they were and how they had gone to Metallica concerts in ju-
nior high. Ulrich seemed to slump. "I really don't want to sue you," he
said. "All I want is for artists who want to get paid to get paid."

Shawn and Parker were quarantined on the fifth floor, away from the
press, but they and Ali Aydar snuck out for peeks at what was going on.
Some of the Napster crew were upset at what was happening. Others
were more annoyed at Napster's leadership for doing a lousy job of
explaining to the public what the issues were. "The bands don't get the

money," Ritter thought, exasperated. "The record companies do." Napster

eventually issued a statement saying that it would comply with Metallica's

request to ban the users. On May 10, Napster blocked 317,377 users cited
by MetaUica. Fans complained that they had been tricked into download-
ing a new version of Napster that made the bans possible. Soon a section

cropped up on the Napster message board entitled "Circumventing Nap-

ster Bans," with helpflil hints about how to get back on. After a news
website linked to the comments, Barber ordered moderator Chang to

remove them. A Napster fan, crying censorship, got hold of Ritter on an

IRC channel and complained. "We wiU go out of business for shit like
that!" Ritter replied under his "Nocarrier" handle. "Delete the post, or

lose the court battle, and you lose your napster! This is reality man!"

all the rave (145)

 the industry

IN EARLY 2000, NAPSTER EXECUTIVES WERE SQUABBLING

over how much money and effort should be spent trying to win the hearts
of pop bands. CEO Eileen Richardson wanted to do the most. She envi-

sioned a New Artist Program that would encourage users to sample

unknown groups and bolster Napster's court defense about having signifi-
cant legitimate uses, the same argument that had saved the VCR before
the U.S. Supreme Court. The allegiance of fan favorites could keep the

public on Napster's side of the war in the press and on Capitol Hill, if it

came to that. And open support from established acts might bring
pressure on the record companies to offer something reasonable. But
Richardson and her marketing deputy, Liz Brooks, were the only top
executives serious about the campaign. Brooks got Napster to sponsor the

free Limp Bizkit tour to promote the company, and later she offered the

band warrants to buy 2 percent of the company, appealing to something

( 147)
more basic than their positive feelings about spreading free music. Brooks

and New Artist Program manager Stephanie Norton also had secret talks

with bands like Korn and Matchbox 20, ojffering special placement on
Napster's Web pages in exchange for their endorsements. Band promo-
tions and an "aggregation of legit partners makes us look legit and makes
every partner in the industry realize they need to play ball," Brooks wrote
in an e-mail. The executives took pains to keep the negotiations con-

fidential. As Norton noted in one internal message, "these bands are in a

sticky^ situation with their labels for setting up meetings with us. We don't
want to piss anyone off."

Always combative by nature, John Fanning couldn't have cared less

about antagonizing the labels. And others in the company didn't see

much point in spending money on free concerts or promoting certain

bands on the website. The vast majority of Napster users weren't looking

for obscure music, and touting selected acts might be seen as selling out.

If Napster fans sensed the shift, that might work against the company
and its phenomenal growth rate. And that, in turn, might make it harder
to get quite as much money when the time came to really sell out, to the

record labels. But the most serious reason for foot-dragging on the New
Artist Program, according to Sean Parker, was a legal one. "Eileen

definitely wanted to do it, and it went to the board. But it didn't make
sense because it had a different interface" than the rest of the song-

searching. Since all of the participating New Artists gave expHcit permis-
sion for their work to be on Napster, the presence of a distinct piece of
the system that had only authorized songs could tempt the judge in the
record-industry lawsuit to order Napster to keep that part and disable the
rest. "We were arguing that there were a lot of noninfringing uses with
the main services," Parker said. "We had to stick to our guns with an all-

or-nothing approach, so we didn't need a dog-and-pony show."

The internal arguments appeared vital to Richardson and Brooks. But
they obscured a much more fundamental problem. None of Napster's

directors had dealt with the record industry before, and they had horribly
misjudged their opponent. Even if the board had gotten behind the New
Artist effort or won widespread enthusiasm from big-name bands, it

likely wouldn't have moved the industry. After all, the big record labels

had a history of opposing most innovations in technology. They were

( 148 ) DOSEPH MENN

used to bands complaining about their onerous contracts or lack of mar-
keting support. They were even used to gripes from legitimate companies
or individuals owed hundreds of thousands of dollars. A business strategy
based on poking the record industry in the eye made about as much sense

as one built on trying to blackmail the Mafia.

In fact, it nearly was trying to blackmail the Mafia. Organized-crime

figures played a major role in the history of rock-music distribution and

sales, as thoroughly documented by court records, journalistic exposes,
and books such as 1990's Hit Men, by Fredric Dannen. Royalties were
chronically and enthusiastically unpaid, leaving music legends unable to

make ends meet. One story unearthed by Dannen involved Florida song-
writer George McCrae, who had a number one record in 1974 called

"Rock Your Baby." McCrae hadn't seen a dime of the more than
$100,000 he was due, and he couldn't pay his rent. He went to visit label

boss Henry Stone in his office and threatened to cut Stone with a knife.

"You really surprise me, today of aU days," Stone said calmly. He fished

out a thick wad of biUs, perhaps a few thousand dollars, and handed it to

McCrae. "But that isn't aU. You see that Cadillac? It's yours, George,"

Stone said, and gave him a set of keys. Stone had a guest in his office at

McCrae had fallen for the

the time, and the visitor couldn't believe that
time-honored cheap-car trick. As soon as McCrae left, he asked Stone:
"How much did that Cadillac cost?" RepUed Stone: "What cost? It's
rented."

Morris Levy, founder of Count Basic home Roulette Records, was

just one of the major industry players with close ties to the mob. Levy
affixed his name to the copyrights of songs he didn't write — like Frankie

Lymon's "Why Do Fools Fall in Love?" —and did business with New
York's Genovese crime family. Before his sentencing for extortion along-

side a mob underboss in 1988, Levy managed to get letters of support

from the heads of aU six big record labels. (The present-day Big Five, all

with subsidiary labels, are Universal, Sony, Bertelsmann's BMG, EMI,

and AOL's Warner Brothers.) Such tough guys were revered within the
record business. As the labels grew more corporate, the rough-and-

tumble of the business grew subtler. But it did not go away.

Take, for example, the matter of payola. Even before rock 'n' roll took
hold of radio, bagmen routinely gave disc jockeys money to spin certain

all the rave ( 149 )

records. Levy, for his part, gave the most famous payola fall guy, pioneer-

ing DJ Alan Freed, a quarter of the stock in Roulette. After congressional

hearings in 1960, payola was made its own crime, separate from bribery.

But the law was so weak that no one was convicted for decades, and the
U.S. Federal Communications Commission specifically exempted "social

exchanges," a loophole that essentially killed the law's usefiilness. What's

worse, the payola exposures and the new law made the record executives

get smarter. Instead of paying off radio programmers directly, they started

fimneling money to outside contractors called independent promoters,

who did what they needed to do with cash, drugs, and hookers, leaving
plausible deniability for everyone at the record firms' headquarters in

New York and Los Angeles.

Joe Isgro, one of the most powerfiil independent promoters and a for-
mer Levy employee, bragged of taking in $10 million a year to break
records on the radio, out of a reported $60 million paid to the core group
of promoters known as the Network. Isgro's independent record label
released hits by James Brown and other R&B acts, and his clout extended
to Hollywood, where he served as a producer of the movie Hoffa. In real

life, he didn't play one of the good guys. Isgro was charged with racket-
eering and payola offenses in 1989. Employees of three different radio

stations testified that they had accepted cocaine, cash, or both from
Isgro's business in exchange for airplay. The case was strong but was
tossed out because the prosecution blew it: They hadn't disclosed contra-

dictory testimony from the trial of one of their many witnesses. Isgro

returned to living the high life in Beverly HiUs until he was sentenced to
more than four years in federal prison in the fall of 2000 for loan-
sharking. As part of that case, the FBI stated that he was a soldier in the

Gambino family of the mob, an accusation Isgro's lawyer denied.

How big a problem were the independent promoters for the record
industry? A yearly tribute of $60 miUion might seem easily affordable

to companies with collective sales of $15 biUion. But profit margins are
thin in the music business. After a failed boycott of the Network served
to make the promoters only more essential to the business, top label

CBS Records, later bought by Sony, was spending an estimated $17 mil-
lion a year on promoters, according to Rolling Stone. In a decent year, that

was more than 10 percent of the label's pretax profit. In a bad year, it was

( 150 ) JOSEPH MENN

half. In the 1980s, the labels came up with an elegant solution: They
began charging the cost of the unsavory promoters back to the artists

themselves.

The big record companies could do that because they could do just
about anything they wanted and still sign aspiring stars. While the labels

defend their practices by pointing to the more than $2 million they may
spend to promote a band that flops, the contracts resemble those that
decades ago left coal miners in debt to the company store. Promotional
fees became just another of what are called recoupable expenses, which
get paid back from the artist's advance. For most bands, that advance

money is aU they ever see, and it can be a big number. But the advance is

actually a loan that's forgiven if the record doesn't sell well. If it does sell,

the band must repay that advance before it starts collecting any royalties.

And the repayment comes out of the band's end of the gross sales — as

little as 12 percent, some of which has to go to the producer, the manager,

the lawyer, and the accountant. In a hypothetical example of a smash suc-
cess worked through by record producer Moses Avalon, say a four-

member band writing its own songs and with a big five-year, four-album
contract breaks out of the pack and into the top 5 percent of big-label

acts, selling 4 million records. At the end of it all, each member of the
star group would net about $140,000 a year. The record company would
gross $11 million before overhead.

The promotion system also had the effect of keeping new music off

the airwaves unless a big-spending major backed it. With radio sewn up
and most tours also paid for by the big companies, independent acts had
few ways to reach the masses, or even connect with the niche audiences
that might be interested in their music if they knew about it. "With the
stranglehold in radio, new artists don't get exposed," said Ted Cohen,
EMI's vice president of new media. "That's why everything sucks right
now. It costs $1 million to have a hit record by the time you've greased all

the wheels you have to grease." It was small wonder that the industry

wasn't very interested in new and more democratic ways of distributing

music: The current system worked for them, at the expense of new
entrants. The essentially conservative nature of the label executives also

explained their opposition to such new technologies as digital audiotape,

which died, and the compact disc, which turned out to be a tremendous

all the rave ( 151 )

industry boon when music lovers went out and repurchased their collec-

tions in the new format.

The lack of access to new music would prove to be one of the big
drivers behind Napster's explosive growth. Another factor for which the
record industry bears responsibility is the collective disgust among con-
sumers at the price of compact discs, which cost only about $1 apiece to

physically manufacture and package. Since the product was so much

cheaper to make than old vinyl records, many consumers assumed that

the retail prices would come down as well, at least after their first few
years on the market. Instead, the prices inexplicably began heading

toward $20 for collections of material that often included only one song a
consumer wanted. The U.S. Federal Trade Commission investigated why
the prices were rising and ultimately came up with an answer. The clue

came when some home-electronics stores began selling discounted CDs

in order to bring in store traffic. The resulting competition drove prices

down to $10 for many titles. And the industry decided to fight back in

the mid-1990s by requiring retailers to agree to advertise higher prices in

order to get millions of dollars in fiinds for joint marketing. The FTC
accused the Big Five labels, which shared 85 percent of the U.S. CD
market, of apparent collusion in violation of antitrust laws. In a 2000 set-
tlement of the charges, the labels agreed to drop the practice, which the
FTC estimated cost consumers almost half a billion doUars. A subsequent
suit by thirty states seeking to recover that money was settled in Septem-
ber 2002 for $143 million.
The CD price-fixing lawsuits were not the industry's first brush with
antitrust accusations, and they wouldn't be the last. Napster's last-ditch

defense in its own lawsuit would be that it couldn't be found to be

infringing copyrights when the labels themselves were abusing the copy-
rights by acting collectively to keep the music from digital use. That long-
shot counterargument would be enough to stave off what had seemed to
be certain death through summary judgment through at least 2002. The
Justice Department also began investigating the issue. Yet it would be a

mistake to view the five labels as a monolith, each company marching in

lockstep with the others. In fact, there would be many times that the

companies, which competed heatedly for artists and sales, were also at

odds on issues of politics or philosophy. One of the five majors was

( 152 ) JOSEPH MENN

owned by Sony, which hedged its record-industry bet by selling stereos

and the like, including equipment that played pirated music. By the year
2000, Time Warner's label was owned by America Online. Not surpris-
ingly, the country's largest Internet- access provider was more interested

than stand-alone labels in making digital music broadly available to its

customers.
Other serious differences of opinion came from executives within the

same record company. Most labels had hawks, old-school leaders who
turned purple with rage at the very idea of an MPS. And most labels had
doves, frequently younger managers who saw the Internet as a way to

reach fans that were being left behind in the aU-consuming drive to get
hits on Top Forty radio. The contrasts were at times startling to music
outsiders from Silicon Valley who were trying this way and that to make

friendly deals with the labels. They would be greeted enthusiastically one

day and met with expletive-laced tirades the next. Overall, the hawks
were in charge when the Internet began taking off in earnest in 1999. But
the active encouragement of the doves was enough to keep the entrepre-
neurs' hopes cruelly alive.

So there were scores of digital-music companies in business by 2000,

offering a multitude of strategies. There were streaming companies like

Listen.com that allowed onetime listening and no copying. There were

Internet radio companies like Spinner, which was bought by AOL. There
were companies that offered short samples of songs and then invited the
public to buy the CD electronically. And there were firms like Liquid

Audio Inc., which offered their own secure digital formats for download-

ing in accordance with music companies' terms for payment. But to have
much desirable content, all of those companies depended to some degree
on cooperation from the big labels. And most of them didn't get the con-
tent they needed. Without that, most of the digital- music firms were on
the ropes even before the advent of Napster. When Napster made every-
thing available for free, it killed the majority of the legitimate start-ups in
their cribs.

The most important digital deal by the labels turned out to be with
RealNetworks Inc. That venture, which became known as MusicNet, was

all the rave (153)

at first ignored by the industry, then embraced with a sudden urgency as
Napster took flight. By then, the labels wanted something to counter

Napster, and they wanted to show federal antitrust officials and such crit-

ics as Sen. Orrin Hatch, chair of the powerful Senate Judiciary Commit-
tee, that they were doing something to put content online. But the effort
to get MusicNet and its companion site Pressplay up and running was a

lesson in abject frustration for those involved in the project, giving a hint

of what Napster would be up against when its time came to deal.

MusicNet began in the Seattle offices of RealNetworks CEO Rob
Glaser, who refiised to believe that the recording industry wouldn't

change. Glaser was a visionary, and he tended to think that the CEOs in

the music business were innovators as well. A Microsoft veteran, Glaser

had walked away from a lucrative career at the software giant to run his

own operation, developing the RealPlayer application for viewing videos

over the Internet. As an afterthought, he worked on a version to play

music. After RealPlayer became one of the most downloaded programs

on the Net, Glaser figured that he ought to be able to interest the record

companies in a plan that would allow them to charge users for each song
they downloaded, with RealNetworks or a joint venture taking a small
percentage of each transaction. Reasoning that media attention might
give others the same idea or even scare the industry hard-liners away,

Glaser worked on his plan in near-total secrecy before Napster hit the
world stage.

Glaser's first recruit was Alan Citron, a former entertainment-

industry journalist who had risen to become president of Ticketmaster/

Multimedia in Los Angeles. After Barry Diller's USA Networks bought

Ticketmaster, Citron was looking for something new to do, and all the
prognosticators said that music was about to be the next killer applica-

tion on the Internet. He took the job, with the basic mission to sign up
labels for the project, promising each of them equity in the new venture
alongside RealNetworks. The thinking was that even if they didn't like

the idea of digital-music distribution, the potential IPO windfall would

be too much to pass up. In October 1999, Citron rented an office in Uni-
versal Music Group's building in Los Angeles, figuring that he would
charm the label's executives as he got to know them in the halls. "We'll

be pals before you know it," Citron thought. In fact. Universal was in the

( 154 ) JOSEPH MENN

process of moving its offices to Santa Monica. Citron should have taken
it as a sign.

Glaser was brimming with confidence in November, when he

divulged a little of his game plan at a digital-music conference in Los

Angeles. By then, RealPlayer had 88 million registered users, and Glaser

said there was no reason that more content wouldn't be coming to Real's

format from the big labels. Acknowledging that the intellectual-property

rights and payment issues were tricky, Glaser nonetheless proclaimed:

"We've been making real progress." Tieless in a gray shirt and glasses,

Glaser waved his hands as he painted a fixture with music streaming and
purchases of digital downloads, as soon as the security issues could be
worked out. "Imagine a record store open twenty-four hours, with every
album ever made, no checkout stand, with instant delivery, that's never

out of stock," Glaser said. "You would think that everyone would be
excited about what it would do for the industry."

Not exactly everyone was, however. Citron made the rounds of the

labels in Los Angeles and flew to New York every few weeks, teUing
record executives that Real was working on a new system —how could
they make it worth the labels' while to participate? "Real was on top of
the world, and people wanted to learn what we were up to, so they took

the meetings," Citron said. "But there was no urgency to do anything." In

one office or another, Citron would run through the options. "I'd say,

'What if we charge 50 cents a song?' and they'd say that would undercut
the physical product. So I'd say, 'Well, how about a dollar?' and they'd say
there would be piracy if it cost that much. Every time you answered a

concern, they would come up with another one."

Citron was used to dealing with irascible entertainment executives,

but he was still unprepared for the hostility he encountered on some of
his trips. Al Smith, a top Sony executive he dealt with in New York, often
came across as sweet and grandfatherly. But he was also a husky six-foot-
three and a buddy of Sony's U.S. music chairman Tommy Mottola, an

old-school record executive from Brooklyn who had once been on the
brink of co-owning a label with Network independent promoter Fred
DiSipio. That deal had been scotched in 1986, after NBC reported that

DiSipio and a close associate, promoter Joe Isgro, had just met with John
Gotti and other top mobsters at a New York hotel. Smith had his hard

all the rave (155)

side, too, and sometimes would just start shouting. Citron said. "There
were three or four meetings where I stormed out" as both men cursed.

Citron said.

After continual redrawing of the business plan and marathon negoti-

ating sessions, Warner Brothers finally agreed to a deal in April 2000. It

was one of the happiest days of Citron's life. Glaser insisted on keeping
the deal under wraps, hoping to get at least one or two more labels on
board before going public with the news. Citron went back to shuttle
diplomacy with a litde more spring in his step. By then, though, Napster

was getting too big for anyone to ignore. Even Citron's twelve-year-old

son and all of his friends were using the program. As Napster grew,
Glaser and Citron figured they couldn't just offer downloads for sale, but
instead needed to turn MusicNet into something that permitted sam-
pling of a wide variety of music. They decided to shift to pitching a

subscription-based model like cable TV: $10 a month for the service and
premium features on top of that. With work on anticopying tools contin-

uing and Warner still patiently waiting for the business model to get

hammered out. Citron made the rounds yet again. Napster had made the

labels much more nervous about copying, but Citron argued they should
allow at least a limited test. If too much of the test music got into the

wild, they could say they had tried. The labels did get more receptive,

even calling Citron on occasion before he called them, "They had to show
their bosses that they had an answer to Napster," Citron said.

An emotional high point came when Glaser got Edgar Bronfman,

CEO of Universal's parent company, to attend a summit meeting in New
York. The executive's presence was an encouraging sign, as was the fact

that Universal sent label CEO Doug Morris and producer Jimmy
lovine — real content people, not technology specialists. "Rob said, 'Let's

get this done or go our separate ways.' The mood was really positive. It

helped us focus," Citron said. It turned out that Morris and lovine had
been in New York anyway because U2 was releasing a new album. In the
spirit of the day, they invited Citron and Glaser to tag along backstage as
they watched U2 perform on MTV's Total Request Live program. They
met the band, and there was a feeling of real camaraderie. After spending
hours together, lovine invited Citron to return to L.A. with him on the
company's private jet. Citron eagerly accepted and spent the flight

( 156 ) JOSEPH MENN

schmoozing and talking about the bright fliture of digital music. They
scheduled a follow-up meeting for the next week at Universal's office.

When Citron went in for the follow-up, it was as if New York had never
happened. "The business guys blew the whole thing up," he said. By this

stage, Citron was used to being disappointed by the industry. Now he was
just puzzled. Why had they bothered to spend a whole day with him
before reverting to the same old tease? "They saw it as an opportunity to
teach us a lesson," he concluded.
Trying to make the most of what progress he had made. Citron
returned to New York for a visit with Al Smith on the upper floors of the
landmark AT&T building. In the conference room. Citron played a little

harder than he had before. "We're close to a couple deals," he told Smith,
who glared. "I don't think you can pull it off"," he said. "We can, and we're
going forward with you or without you," Citron responded. Smith started
screaming, and he ordered Citron out of the room. "You won't get any
music!" he shouted at Citron's back. "Yes, we will!" Citron shouted over
his shoulder. "You won't get Ricky Martin!" Smith said, referring to one
of Sony's top sellers of the day. "We'll get plenty!" Citron retorted, still

walking. "You won't get Mariah Carey!" Smith yelled. Citron left, shaking
his head. It was aU so primitive. The industry valued tough guys, the

more street-smart the better. "There were all these whose-is-bigger' argu-

ments," said Citron. "It's people clinging to a way of life."

An entire year passed in hagghng after Warner had agreed to do
something with MusicNet. In April 2001, as Citron was resigning —and
the day before congressional hearings on the record industry's snaillike

digital efforts —Glaser announced that MusicNet was a success. Warner,

Bertelsmann, and EMI had signed up, and when the technology was
worked out, they would begin licensing music. Sony and Vivendi Univer-
sal went their own way, again joined by EMI, with the Pressplay service.

When the two systems were finally opened to the public, at the very end

of 2001, they were an undesirable mishmash, reflecting every bit of the

struggle that had gone into their construction. With MusicNet, $9.95 a
month brought the right to stream, or listen just once, to one hundred
songs a month. A hundred other songs could be downloaded but were
rendered unplayable at the end of the month. Pressplay was better, offer-
ing four different subscription plans. The top-of-the-line Pressplay plan,

all the rave (157)

at $24.95 a month, did allow consumers to burn up to twenty tracks a
month onto a CD, and the other downloaded tracks didn't expire so long

as the user kept up the subscription payments. But both services lacked
the best content, and listeners stayed away in droves.

MusicNet and Pressplay aside, the doves in the record industry did
many small deals, afraid as they were of piracy. But even the most liberal
were flummoxed by Napster's approach. Two of the biggest doves,
responsible for eighty electronic deals in three years, were Ted Cohen and
his boss Jay Samit, an executive vice president at EMI and much more of
a technophile than a record-industry man. Internally, they had to over-

come fear that the music would be stolen and institutional resistance to
—
new forms of distribution a resistance so intense that when Samit
worked on new media at Universal, his request to buy the domain name
Universal.com for $5,000 was turned down. They also had to deal with an
accounting system from the Stone Age. "Digitized content? None of the
companies even had digitized contracts," Samit said. There was no way to
sort out electronically who had which rights to what song.
Once they got past those hurdles, the men had to structure deals of

enormous complexity. To begin with, songs carry with them multiple sets

of rights holders. The label might own the rights to one performed

version of a song. Someone else often has the rights to the underlying

composition. And there was a complicating difference between perfor-

mance royalties —paid for a concert and perhaps a digital stream —and
mechanical royalties, which are paid for radio play and the like. Then
there's the problem of the diflFerent laws in each country and the different
rights that many contracts assigned, depending on where the sale or

performance occurred.
"Let's say I download a song on my Nokia in Japan," Samit said. "It's

by a German band. The master [recording] is owned in Hong Kong.

Let's forget about sampling [songs borrowing from previous recordings].
But I'm paying with a U.S. credit card . .
." The issues go on and on. "It

seems siUy. But we're the deep pockets that get sued if something goes
wrong." Still, Samit persevered. A patent-holding technologist who had
created the laser disc, he believed that online connection with fans was an

( 158 ) JOSEPH MENN

opportunity too big to be missed. "There are so many new ways to slice

and dice the content," he said. Most production costs vanish, "and we can
let you know when your favorite artist has a new record." Samit and
Cohen, whom he hired in early 2000, did licensing deals for the play of
EMI songs on Internet jukeboxes, in hotel rooms, for a digital-only single
by Lenny BCravitz, and for a Pizza Hut promotion that sold eight hundred
thousand CDs with songs picked by customers.
It was hard to imagine a more receptive audience for Napster than

Samit. And the company had a terrific introduction to him from Ted
Cohen. Cohen had started in the music business managing bands and
putting on dances at his Cleveland high school. At Ithaca College, he

spent so much time booking bands into clubs that he went on academic
probation and eventually returned to a local school in Cleveland. There
he became music director at the college radio station, which happened to

be the only alternative FM station in the area. As a result, real acts hke
blues guitarist Johnny Winter stopped in. Cohen quit school to be a

record buyer for a chain, then moved into the promotion business for
Columbia and Warner Brothers. "I kept running away with the band, so
they moved me to artist development," Cohen said. The next stop, in

1982, was Warner's new- media group, and it was there that Cohen
turned tech.
When the Web took off, Cohen rode with it as a consultant, helping

Silicon Valley's Liquid Audio and assisting then-little-known Amazon.com

to get into CD sales. He built a portfolio of dozens of companies and
groups that he advised, from Microsoft to the RIAA. In May 1999, when
Napster had just been incorporated, Cohen saw its website. A box on the
site invited prospective advertisers to send e-mail. So Cohen did, intro-

ducing himself John Fanning called, and they chatted. Two months later.

Fanning asked if Cohen would come to work at the firm, then still on the
East Coast. Cohen demurred, saying he wasn't interested in working any-
where fiill-time. In September, Cohen heard from Fanning again. This

time, Fanning said that he had hired Eileen Richardson and Bill Bales

but wanted Cohen as a consultant. Fanning had Cohen fly to San Mateo,
where the conversation with Napster's new executives led to an offer to be
CEO. Cohen declined again but agreed to serve as an adviser.
Two months later, Cohen was chairing the Webnoize digital-music

all the rave (159)

conference at the Century Plaza Hotel in Los Angeles, and he brought
Richardson down to speak in a panel discussion. It turned into Napster's

coming-out party, and it was a memorable experience. The panel had

other digital firms on it but no one from the record companies. Richard-
son gave her music-discovery pitch: "We are working with baby bands,
independent acts, and helping to build careers," she said. When someone
in the audience asked what contact Napster had had with the RIAA
about copyright permissions, Richardson said she'd love to talk to them,
that she was surprised the group wasn't on the panel with her. "Shouldn't

we be talking here about how this new medium can change the face of

music?" In a bit of theater, she added: Is there anyone in attendance from

the RIAA? As it happened, there was, a low-level employee named Karen
Allen, whom Cohen helpfiilly pointed out. "Come on up here, let's talk!"

Richardson said. Allen was nervous at being put on the spot in front of an
unfriendly crowd, and she came across as less open to dialogue than
Richardson was. The vaudeville helped Richardson cast Napster as the

innovator, dealing with a dinosaur that wouldn't be reasonable.

That wasn't a fair picture at all, since Richardson had been playing
dumb with the RIAA. And Cohen soon would learn how incomplete the

picture was. He set up a meeting between Napster and Samit for mid-
December. Bales came down for the get-together on the top floor of the
historic Capitol Records tower at Hollywood and Vine. So, Samit asked

him, how does Napster work? What's the business model? "Lay some-
thing out for me," Samit said. Bales explained that Napster didn't have a
model yet — it was just letting people get music for free. "I explained that

that was illegal," Samit recalled. "He didn't have any clue." Bales said he
would get back to Samit once Napster worked out a business plan. He
never did. "These guys were willing to discuss a deal, and Eileen didn't
support any discussion with the labels at that time, so I had to drop the
ball," Bales said.
Bales tried another approach with a Bertelsmann contact. Tom
Gieselmann, an investor with Bertelsmann's venture-capital arm in Santa
Barbara, California, called Bales at home, saying he thought Napster had
tremendous potential. He wanted to meet to discuss investing, and Bales
knew Richardson would veto the idea. So Bales went to Fanning and
Amram, who told him to go ahead. Gieselmann caught a plane and met

( 160 ) JOSEPH MENN

Bales in the Mandarin Oriental hotel lobby in San Francisco. Gieselmann
promised to introduce Napster to Bertelsmann CEO Thomas MiddelhofF
and others, and he began quizzing Bales about Napster's closely guarded
usage and file-swapping numbers. "I had to give him something to make
sure he stayed interested," Bales said. Gieselmann turned over an enve-
lope and started doing the math. His face turned pale. "He was like a

ghost," Bales recalled. "You guys are destroying the record industry,"

Gieselmann told him. "You've distributed more music than the whole
record industry has since it came into existence." When Bales reported

the conversation, Fanning told him to cut off flirther contact.

Cohen stayed in touch with Napster and coached the company for

another few months. On his last visit to the office in early 2000, he saw
whiteboards filled with legal arguments to deflect questions about the
theft of music. "It just became apparent to me that their message was not
to settle," Cohen said. In April he gave up trying to convince Napster to
negotiate and took the job under Samit. "I stiU think Napster is the

coolest thing I've ever seen," he said nearly two years later. "Had we been
able to work it out, it would have grown the music market. But it just got

so acrimonious. It's hard to negotiate with people who are publicly saying

they are going to beat you. And the rhetoric from the labels has been just

as intense."

Samit and Cohen were among the first record executives to get a

close-up view of how Napster worked and the foolhardy executives in

charge of it. Other label people had to be educated by the RIAA. Napster
turned up on the RIAA's radar in the late summer of 1999, flagged by the

trade group's Internet-piracy specialists. That team, which hadn't been in

existence for very long itself, found Napster during routine searches for
MP3s in chat rooms and on Internet Relay Chat channels. Some music
trading was going on all the time, and the RIAA didn't have anywhere
near the resources to stop it all. Instead, staffers were trained to dig a little

more deeply. Who owned the site, and what kind of resources could they
put behind it? How large was the repertoire? How many users did it

have? And how easy was it to get a song quickly? "If it takes thirty min-
utes to get a song, I'm less concerned," said Frank Creighton, the RIAA's

all the rave (161)

head of piracy enforcement. Napster set oif Creighton's alarm bells

immediately. "FTP sites [those using powerful File Transfer Protocol

commands] are nongraphical, non-user-friendly, and you can't use them

with a regular browser. IRC is really technical, but it's more interactive

you can query for a specific file. Napster combined those services and
brought the best aspects together. It was very robust and efficient,"

Creighton said. "We thought it was really exciting."

Creighton's job had gotten a lot more compHcated over his fifteen

years at the RIAA. In the beginning, he was chasing counterfeiters of

eight-track tapes. The bad guys weren't too hard to find —they needed a

half-dozen employees, a warehouse, and specialized duphcation equip-

ment worth as much as $250,000. Piracy back then cost the record industry
about $250 million a year, a level that stayed constant until the mid-
1990s. Then, as unencrypted MP3s made high-quality sound transferable

more quickly, FTP sites began springing up, mostly at universities.

Creighton sent his first threatening letter to an Internet site in 1997, then

many more. Usually, a letter did the trick. For all of the eventual criticism
about the trade group's heavy-handed tactics, it filed fewer than a dozen

lawsuits in the ten years before Napster. By 1998, Creighton was feehng

good about the work he had done on FTP sites. Most of the high-speed
Internet lines were at colleges, which were sensitive to threats about legal

action and even the potential loss of federal funding for their communi-
cations networks. The Digital Millennium Copyright Act, written by

Orrin Hatch's Senate Judiciary Committee, helped matters further that

year by setting out the rules of the road. Now the RIAA could inform an

Internet service provider of infringing content under its control, and gen-
erally the company would cut off access. "The euphoria lasted a brief

period," said Creighton. IRC and other chat networks were multiplying,

and Creighton had to hire more specialists to keep up. The RIAA office

grew from thirty- five people to seventy in just a few years.

With Napster, Creighton began as he usually did, playing the good

cop. "We didn't want to come across as antitechnology or anti-consumer,"

he said. John Fanning was the registered contact person for the site, and
Creighton dropped him a reasonable e-mail on September 23, 1999. "I

am writing to you to see if we could start a productive and mutually

beneficial dialogue regarding your service and technology," he wrote. "As

( 162 ) JOSEPH MENN

you may or may not be aware, your software, while exciting to both con-
sumers and producers (including potentially our members) of sound
recordings, unfortunately facilitates in many cases the unauthorized post-
ing of our members' sound recordings." Maybe there were good ways to
reduce the number of unauthorized listings, he suggested. And while
there were legal issues involved, Creighton said, he "would prefer to focus

on operational issues, and see if we can't create a productive working

relationship."

Fanning exulted at Creighton's soft approach, which he interpreted as

weakness. "He took that as a sign that even the RIAA thinks we're legal,"

Amram said. Fanning e-mailed a reply that he was interested in talking;

he just needed to "coordinate things internally." Copying Amram and

Bales on the message. Fanning said he would be back in touch the follow-
ing week. Instead, four weeks went by. Creighton wrote again in October:
"I hope you have had a chance to dialogue with your colleagues. ... I

would really like to move this forward as I am receiving much press inter-

est about your service and would like to respond that we are in some
productive dialogue." This time, Fanning replied that he thought such a
positive statement to the media would be "an appropriate response." But
he added that it was unlikely he would be the right person to represent

Napster, saying he would let Creighton know who that person was.

"Thanks for the response John, but this issue can't wait," Creighton
wrote. "I need to speak to the appropriate person ASAP."
Hours later, Creighton got a phone call from Richardson. "She was
very nice. She came across by her own admission as being very naive. She
said she didn't understand the nuances of copyright law, and so she didn't

know what I wanted and what she had to do." Creighton gave her a week
to get up to speed. When he called the next time, she was full of infor-
mation about the Supreme Court's ruling on VCRs and about why she
didn't have to shut Napster down or filter out copyrighted songs. Still,

Creighton pressed for a meeting, getting only the runaround. On Octo-

ber 27, RIAA president Hilary Rosen decided to raise the stakes. "I think

we need a complaint drafted to be ready" to file in court, she wrote to the

RIAA lawyers. "Frank is not getting very far with them." And Rosen
encouraged a response to a local district attorney who had inquired about

a possible criminal probe into Napster and its users. No one in the loop at

all the rave ( 163 )

Napster could honestly claim to be surprised when the RIAA sued in
December 1999.

Even then, many record executives didn't get it. That changed the
day after the Grammy Awards in February 2000. At the regular RIAA
board meeting at the Four Seasons Hotel in Beverly Hills, Rosen decided
to try a little show-and-tell. It had been a good year for the industry, and
people were feeling upbeat. "You know about Napster," Rosen told them.

"But you need to understand it. This is going to be big, and the fact that

we sued them is going to make it bigger."

Staffers downloaded the software and registered in front of the eyes

of a couple dozen label bosses. Then Rosen asked the executives to start
naming songs. Not just big hits, but tracks deep into albums, either
brand-new or obscure. The record men took turns calling out more than
twenty songs. The staffers found them every time, and fast. Soon no one
wanted any more convincing that the threat was serious. As the crowd

grew increasingly uncomfortable, a Sony executive tried to cut the ten-

sion. "Are you sure suing them is enough?" he asked. The capper came
when someone suggested a hunt for the 'NSYNC song "Bye Bye Bye."
The cut had been on the radio just three days, and the CD hadn't been

released for sale yet. And there it was. Maverick Records executive Ron-
nie Dasher had seen enough. "This is too depressing," he said. "Let's

move on to other business."

With the labels now enthusiastic backers of the lawsuit, they began
thinking more about public relations. Worried about the bad press they
were getting for attacking a nineteen-year-old, they redoubled their

efforts to get their bands to speak out. "We want to do a national adver-

tising campaign and will have a large coalition of interests that support it

including artists," Rosen e-mailed top record executives in March. "I

don't believe we will change behavior until there is more legal music
online, but a campaign to raise consciousness is critical and as an industry,

we must put our stake in the ground." Eventually, most big-name acts
who took a public position were anti-Napster. But in the early days, it
was slow going. When MetaUica stepped forward, "they got crucified for

it," said EMI's Samit. "You don't want to look uncool to your fans." Many

( 164 ) JOSEPH MENN

 Napster founding
developer Jordan
"Nocarrier" Ritter,
Matt "Shok" Conover,
and Napster founder
Shawn "Napster"
Fanning in Hitter's
San Mateo, Cali-
fornia, apartment.

The three met online

in a hacking and
security group that
Conover founded
in high school.

From left

to right: Seth
McGann, Andrew
Reiter, Dug Song
(flashing a sign for
Matt Conover's
computer-security
group, wOOwOO),
and Jan Koum
at the DefCon
hacker convention
in 1999. Several
members of the
group, including
McGann and
Song, helped
Shawn Fanning develop Napster. Later,
McGann nearly stole the source code for
chief Napster rival Gnutella, backing off
only when he learned the computer he
broke into belonged to Song's friend.

^ Business-minded Napster cofounder

Sean Parker, with FreeNet founder Ian
Clarke in the background, at a San
Francisco dinner for the digital elite.

(Photo courtesy of Edge Foundation Inc.)

 Future Napster chairman John Fanning (center) playing chess with former
U.S. cochampion Roman Dzindzichashvili outside the New York Open chess
tournament in 1996. Standing to the left is Dmitry Dakhnovsky, the first Carnegie
MeUon student Fanning hired for his online chess firm.

John Fanning's house in HuU, Massachusetts. While he turned the condemned

house into a miUion-doUar mansion, his employees sometimes went without pay.
 Eileen Richardson, Napster's first

CEO in Silicon Valley, was a veteran

venture capitalist, but she had no idea
what she was getting into.

(John Todd for the Los Angeles Times.)

*' Yosi Amram, Napster's first equity

investor, had been hurt before by his taste

for rapid-fire deals. He was stuck

mediating between Richardson and
John Fanning.

Napster vice president

of business development Bill
Bales in the Napster office.
Responsible for raising money
and recruiting top executives.
Bales added to the internal strife

by developing a back channel

with John Fanning.
 *
Napster engineers Ali Aydar (left) and Jordan Ritter clown in the Napster

office after fixing a bug that limited the number of users able to connect to each
server. Their best work was never publicly acknowledged.

Napster's anonymous-looking building in a Redwood City office park in 2002. It was

an unlikely headquarters for a revolution that would pit the powerftd entertainment and
technology industries against each other.
 Recording Industry
Association of America
president Hilary Rosen
was the most prominent
Napster critic, demonstrating
the powerflil program for
alarmed label executives and
pushing for a lawsuit.
Behind her is the group's
lead attorney in the case,
Russell Frackman.
(APAVide World Photos.)

Napster supporters
rally outside the company's
first California office in
San Mateo in May 2000
as MetaUica delivered
thirteen boxes with the
names of Napster users
who were offering
Metallica songs over
the system. The banner
refers to the record-

industry trade group and

the Metallica album
Master of Puppets.

! Metallica drummer and

spokesman Lars Ulrich on the
same day. The San Francisco
band's lawsuit against Napster
earned it attacks on its website
and charges that it had become

a stooge for the big corporations

that reap most of the profit

from music sales.

(APAVide World Photos.)

4ft Shawn Fanning and Napster CEO Hank Barry, who succeeded Eileen
Richardson, exult at the July 2000 ruling staying an injunction that would have
shut the company down. (APAVide World Photos.)

Jk Hank Barry, Bertelsmann AG electronic-commerce chief Andreas Schmidt, and

Bertelsmann CEO Thomas Middelhoff play with Shawn Fanning as they announce
Bertelsmann's stunning alliance with Napster in October 2000. The move infuriated
other record companies. (APAVide World Photos.)
 Rock singer and record-industry foe Courtney Love presents Shawn Fanning with an
award in October 2000. She introduced him to ceremony attendees as her future husband,
then sat on his lap. (Photo by Lats Latvis.)

Motion Picture Association of America president Jack Valenti (left)

warned that if Napster survived, Hollywood would be endangered. He speaks
at a panel in 2001 beside Konrad Hilbers, who had just been appointed as

Napster's last CEO. (APAVide World Photos.)

 left:The Red Herring magazine cover in August 2002. John Fanning
finallymade the front of a business publication, which credited him for "creating"
Napster. His nephew and other Napster loyalists were incensed. right: The
Time magazine cover in October 2000. Shawn Fanning became the best-known
hacker in the world, but said as little as possible to the press. (Time Pix.)

^ From the New Yorker, February 2002. Napster became the most-searched-for
term on the Internet, as tens of millions of users decided that it was morally
acceptable to download digital music from strangers.
artists were nonetheless alarmed, especially when they toured and heard
fans singing along to songs that hadn't been released and were out only in
bootleg versions. Others couldn't get too exercised over Napster because
they never saw more than their advances. "I don't feel like Napster cut
into my royalties, because I generally don't get royalty payments anyway,"

said Dean Wareham, guitarist and singer for the New York band Luna.
Besides, "radio in this country is awful," he said. "So how else are you
supposed to find out about music, other than a little harmless file-

swapping?"
Some major bands were Napster believers at least at — first. The
Beastie Boys was one of them. The members had developed an interest in

things Internet as early as 1994, when software writer Ian Rogers, an old
friend of singer Mike "Mike D" Diamond, showed him how the Net
worked during the rolling LoUapalooza festival. In 1998, Rogers toured
with the band and recorded performances through the mixing board, then
posted the recordings to the group's website. "I started putting those

things up, and it created a big stink for them. They had Capitol question-
ing them," Rogers said. Band manager John Silva helped the Beasties

negotiate to keep the digital rights to their songs, and the band also kept

ownership of part of their master recordings. That gave them greater free-
dom than most of their peers to experiment. Rogers kept close tabs on
what was happening in both music and technology: By then he was
working at Nullsoft, the tiny company that developed Gnutella. When
AOL bought Nullsoft and suggested he move to San Francisco from Los
Angeles, Rogers quit and joined the Beasties' own label. Grand Royal, as

head of new media. Diamond was already a Napster user, both impressed
by its reach and alarmed by its implications. Rogers told him he thought
the system was obviously illegal but had tremendous potential for mass
exposure.

Grand Royal was selling CDs through its website, and the band
began releasing a track or two of each new record, downloadable for free.

A link on the site sent Web surfers to the approved cuts on Napster, so
Grand Royal could sidestep paying for the server space and bandwidth.
"We would do promotions," Rogers said. "But the rest of the record, no.
That's what we were trying to make a living on." After waiting in vain for

months to see what sort of payment Napster would offer for the band's

all the rave (165)

nonpromotional songs, the band gave up and joined others in ordering
that the company take down the unauthorized files.

In the meantime, Rogers had gotten to know Shawn Fanning through

mutual firiend Dug Song, an elder statesman fi-om Shawn's hacker group
AvOOwOO. "I like Shawn a lot as a person," Rogers said. "He was in this

amazing place, because he had the skills to pull it off, but not the experi-
ence to tell him not do it. It got way fiirther down the road than anyone

could have imagined." Napster, Rogers said, was the product of a unique
set of circumstances, the most important of which was the dot-com
investment fever that hit at the exact moment when Shawn and the

opportunists around him were setting out on their quest. If Napster hadn't

started just then, he said, "the time could easily have come and gone where
people would give you money to do something that is clearly illegal."

Alternative band the Offspring had a later but even more enthusiastic
awakening to the power of the Web. In 1998, Rolling Stone printed the
first of a new kind of pop chart: Most Downloaded Songs on the Inter-

net. There, at number one, was the Offspring's new song, "Pretty Fly (for

a White Guy)." "The whole thing surprised us," said band manager Jim
Guerinot, who also handles Beck and No Doubt. At one point, the song
had been downloaded 22 million times and the band had sold 8 million
records. "If we had been downloaded 40 million times, would we have
sold 16 million records?" Guerinot wondered. When Napster rose to
become the Internet vehicle of choice. Offspring singer Dexter Holland

became one of the service's most vocal supporters, touting it in concerts

and crediting Napster with much of the band's success.

But like the Beastie Boys, the Offspring expected some sort of busi-
ness model to be worked out sometime, or at least Napster to ask the
band's permission, which would have been granted speedily. Even after

the dustup over it selling gear with the Napster logo, the Offspring
remained a supporter. The last straw didn't come until much later, when
word circulated that Napster was seeking a settlement by offering its

stock to the record companies. "Why didn't they come to the artists?"

Guerinot asked. "Why not get in bed with the top one hundred artists?

They were as bad on the corporate-investment side as they were on

everything else. Their strategy was to sell everything out. We just became
mortified and asked to withdraw our amicus brief" from the lawsuit.

( 166 ) JOSEPH MENN

 Some artists who said nothing at all about Napster helped its cause

indirectly. Generally speaking, the more obscure a band was, the more
likely it was to applaud greater exposure through Napster. Midsize and
larger bands, while less likely to be outright Napster supporters, were
more likely to feel cheated by their long-term and unrewarding contracts
with the major labels. Those acts now had two new things to be mad
about. The first was their contracts. And the second was that Napster

could be hurting their sales, and the labels weren't coming up with rea-

sonable alternatives.
As they chafed under the dual pressure, some bands set up their own
retail One was the cult band Ween, which hailed from
operations online.

New Hope, Pennsylvania. Ween recorded on Elektra for eleven years,

with sales that kept rising until the band had sold a fairly impressive 1

million albums total. Yet by the end of its contract. Ween had not only
never seen a royalty check, it still owed the label $1.2 million from its

advances. On a lark, the band recorded a Christmas album independently

and offered it for sale through its website. Total sales: about 3,000

records. Total income: about $40,000. But the band got to keep aU that

income. A big, fat lightbulb appeared over the band members' heads, and
they considered running their own tiny label. But Ween was torn. Three
thousand people aren't very many fans. "They don't want to be a clique

for geeks," a friend of the band explained. If they go back to a major label,

they stay poor, but more people will hear them.

So FOR ONE REASON OR ANOTHER, Napster's popularity helped prod more

stars to speak out about the injustice of their contracts. And they did
more than speak. Don Henley cofounded the Recording Artists Coali-
tion, which raised funds with performances by a wide range of perform-
ers, including BiUy Joel, Sheryl Crow, Stevie Nicks, and Dwight Yoakam.
"I got signed to a deal with a company that was sucking my blood for
twenty-five years," John Fogerty told the crowd at one benefit concert. "I

just don't want that to happen to nobody else." More stars filed lawsuits

for back royalties, and some of them won millions of dollars when the

labels were caught using sleight-of-hand accounting. And the coalition

itself filed a friend-of-the-court brief on Napster's side in the labels' law-

all the rave (167)

suit. The amicus brief focused on just one of the many issues in the case,

asking the judge not to assume that the labels owned the master record-

ings in perpetuity under a disputed doctrine called work-for-hire. Under

the work-for-hire interpretation espoused by the labels, the companies
didn't need a specific contractual clause from the bands signing away the
rights to the masters. And the companies said the bands had no right to

terminate the contracts and get those rights back. The Napster court was

one of the places where that argument was being aired.

A bigger and more immediate target for the Recording Artists Coali-
tion was a 1987 amendment to a California law that had ended the old
Hollywood studio system, which bound underpaid stars to movie compa-
nies for life. The original law said that performers could end their
contracts after seven years and become free agents. Intense lobbying by

the record industry won the later amendment, which partially exempted
musicians. Because of that exemption, record companies could require

seven albums in seven years but make that output virtually impossible to

fulfill in time because of touring, videos, and other obUgations. Then the
labels could hold out the threat of a lawsuit to keep more albums coming
well after the seven years were up. Now, state lawmakers in Sacramento
were treated to visits by a new breed of lobbyist, in the persons of Court-
ney Love, Beck, and Carole King.
The more the bands bashed the record industry, the more Napster
users felt as though they were justified in ripping off the labels, and the
less inclined members of Congress were to come to the record industry's

aid. In testimony before a Senate committee in Washington, former

Eagle Henley was one of the few voices of moderation in the great Nap-
ster fight. He said that the Recording Artists Coalition supported the
labels' copyright suit, but he complained that the musicians were being
left out of the negotiations and most of the discussions about new laws.

Forced digital licensing

— ^with the artists sharing in the royalties —should
be considered as a last resort, he said. Napster and its successors "flour-

ished because the record industry has failed to be forward-thinking and

has made it extremely difficult for legitimate companies to license the

rights," Henley said. "The record industry fiddled on the sidelines while

the digital revolution went on without them."

( 168 ) JOSEPH MENN

 8

competition

THE WAR WITH THE RECORD INDUSTRY KEPT NAPSTER ON

the front page of newspapers. But inside the company, Shawn Fanning
and his crew spent more time worrying about other threats, many of
which most Americans never heard about. The team had good reason to

be concerned: Napster was at serious risk from competitors for many

months after its inception. It was vulnerable because Shawn's major con-
tribution to the march of technological progress hadn't been a blinding

discovery or an invention that could be protected by patent law, though

the company would try. Instead, it was a brilliant insight —one that could

be copied by others, and was. In that context, Napster's pursuit of rapid

growth at any cost made far more sense. If the horde of competitors
caught up, Napster would have had far less to bargain with when it finally

faced the music, as it were. In the end, Napster dominated the market
both because of its damn-the-torpedoes approach and its flawlessly easy-

( 169)
to-use technology. Only when it was crippled in court did rivals surpass

Napster, and many users say that the system's successors have yet to

match Napster's execution.

None of the current generation of souped-up file-swapping services

were anywhere in evidence in the fall of 1999. Back then, Shawn, Sean
Parker, and Jordan Ritter were alarmed by programs with names like

CuteMX, iMesh, and Napigator. CuteMX was among the first real

threats, developed in mid-1999 at a software firm called GlobalScape Inc.

Like Napster, CuteMX had a hybrid peer-to-peer architecture, with a

central index that referred visitors to content stored on users' personal

machines. GlobalScape was known for its Windows applications, and the
"client" features seen by the users were "gorgeous," Ritter said. As a result,

"they had a following. They were neck and neck with us," he said. Users

could share music and also movies, which were mostly pornographic at
the time. CuteMX could have been bigger than Napster, but two things
got in the way. One was that as the product of client-program specialists,

the central servers were structured poorly. That meant it was more vul-

nerable to hackers, and it was even less stable than the early Napster.
When demand grew, the CuteMX servers had a harder time keeping up.
The other problem was more basic. GlobalScape was a real company with
traditional executives. When the record industry called and warned them
that they were facilitating copyright violations, the executives hstened.

The lead developer of the project left the firm, and GlobalScape puUed
the plug.

The most consuming of the competitive worries came from an origin

markedly similar to Napster's. That was Gnutella, the brainchild of

another brilliant teenage hacker from the boondocks, Justin Frankel. So
great was Frankel's underground reputation that Shawn and his team
were terrified of Gnutella before they had any idea what it did or how
it worked. An Arizona college dropout, Frankel had made his mark by
writing and distributing the best-known MPS player for personal com-
puters, Winamp. Frankel's tiny company, Nullsoft, was then bought by
America Online in June 1999, creating an unholy alliance of corporate
distribution power with technical expertise. Frankel moved Nullsoft to

San Francisco and became friends with Shawn, bonding mainly over their

love of fast cars.

( 170 ) JOSEPH MENN

 In late December, Frankel told Shawn that Gnutella was coming.
Shawn ran into the Napster office and started shouting.
"Justin Frankel's working on something that's going to blow us away!"
Shawn told Ritter and the other engineers. Shawn next demanded that
the team bind all of Napster's servers together, making a more complete
system that could stand up to whatever Frankel had in mind. "We all

freaked out," Ritter said. By then, there had been a long-running debate

inside Napster about whether to link the servers and how to do it. One of
the existing system's weaknesses was that everyone who logged on to

search for a song was sent to just one server, which in turn referred the

user to others who were relying on the same machine. When the number
of servers grew to fifty, say, that meant each user was only exposed to the

one-fiftieth of all the songs available on Napster at that moment. So

many people were on each server that the songs being sought still came
up better than 95 percent of the time. But linking them all together could
make the system many times more powerful than it was.
There were a couple of arguments against linking. One of them was
voiced by Napster's legal team. The lawyers opposed linking for the same
reason they opposed many other technical improvements at Napster: The
step would make the company seem even more of a threat to the record

industry, which could run to the judge already weighing the case. And it

would offer another example of how involved the company was in direct-
ing people to songs. The more hands-off Napster was, the better chance it

had when it argued that it was just like a telephone, company or other
automated service that couldn't be responsible for the content it carried.

Those concerns were likely on technology vice president Eddie Kessler's

mind when he sat for a sworn interview with the record-industry lawyers
more than a month after Shawn started working on linking. Asked
whether a plan for systemwide music searches was in the works, Kessler
replied: "There hasn't been any discussion of plans to have the server that
users connect to search across the names of MP3 files other than the ones
that user is connected to." Kessler explained in a later interview that his
denial had been based on semantics
—"We didn't have a plan to do it," he
said. The other case against linking, voiced often by Ritter, was technical.
It was a serious challenge to tie the system together, and the whole thing
could crash if it wasn't done right. The biggest hurdle for the coders was

all the rave (171)

that the search technology wasn't fast enough, and it would create a mas-
sive logjam if the number of simultaneous searches multipUed by fifty.

Parker thought that linking the servers was crucial no matter what
the risk —not so much for the extra music it would bring users, but to
unloose chat and still-to-be-developed functions from the isolated

machines. If you wanted to search the universe of all other Napster users,
it was impossible without connected servers. With linking, Parker imag-
ined, the system would allow users to post personal profiles, showing
what music they had available, what they were listening to the most, and
what they had been playing most recently. If another user downloaded a
file from that person, they might want to see what else the person was
interested in. With work, the system could develop in such a way that

some users emerged as thought leaders, and others would habitually turn
to them to learn what was new and good, just as people turn again and
again to the same friend in the real world for advice on a given topic.
"Ultimately, Napster could have evolved into a bazaar, where subcul-
tures discovered each other," Parker said. "You wouldn't find an isolated

person, but a person who had an interest in different genres, with their
own taste, who was part of a community, and that user was a destination

in that community. ... It could lubricate the social discovery of music and
accelerate it and usher in, I thought, a new golden age of music." All of
that would be possible only if aU the servers were Hnked. And economi-
cally, linking would make Napster a natural monopoly. America Online's
AIM instant-messenger program worked the same way. It capitalized on
the so-called network effect, in which the strength of the network grows

geometrically with the addition of each user. That makes it very painful
for someone to leave the network. Because AIM doesn't interact with
other instant-messaging systems, many users won't leave it unless they
can get most of their friends to leave as well. If Parker's plan for a

national system of music-community discovery worked, it would perma-

nently lock in the company's advantage before even very good rivals could
put their shoes on.
After hearing about Gnutella, Shawn summarily dispensed with all

the counterarguments. "We have to do it now. Like tonight," he said.

With Ritter still resisting, Shawn sat down to do it himself "It drove me
to stay up for two or three days and write," Shawn said. "That was kind of

( 172 ) JOSEPH MENN

the peak, after programming for a year straight. I couldn't believe how
much coding we did in one night. It was just unbelievable. That was criti-
cal." The first version of the linking software was buggy, and it was never

implemented. But it made the staff members feel that they were at least
doing something to ward off Frankel's attack.
When Gnutella appeared nearly three months later, Napster's

engineers were nervous but impressed. The system was much more com-
plicated than Napster's. Instead of relying on a central server, Gnutella

allowed users to create their own, smaller networks for searches. A

request sent to one small network hub would be relayed to more hubs,
and the geometric progression would reach a vast number of computers.
The major advantage Gnutella had over Napster was that there wasn't

what engineers refer to as a "single point of failure": There was no one

machine, or small set of machines, on which everything else depended. In
this case, of course, the fear was not a technical malfunction —the fear

was legal action. Once Gnutella was in the wild, there was little the

record industry could do about it. Gnutella was "unstoppable from a tech-
nological perspective," Shawn e-mailed his colleagues.

Gnutella also gave Napster some reasons for relief. It was nowhere
near as easy to use as Napster was. And because of its technical structure,
Gnutella had tremendous speed issues as its usage grew. The problem was
that each inquiry multiplied as it ran through the decision tree. As the

network grew larger, so did the multiplication, clogging up bandwidth

and slowing everything down. While Gnutella got wide press, the initial

version never got above ten thousand or twenty thousand users, Ritter

said. As for Napster's precarious political position, Gnutella was a

tremendous help. Since there was no way for the record companies to
control Gnutella, Parker thought the labels might be willing to do a deal

that would legitimize Napster and thereby keep that audience from turn-
ing to Gnutella and escaping their reach.
"It was the best thing that could have happened," Parker said.

"We had been trying to get Eileen interested in using this idea as a

threat to get a deal from Day One." If Gnutella hadn't been invented
elsewhere, Parker said, Napster might even have tried to do the same
thing itself, officially or covertly. In fact, he suggested, "it's entirely possi-

ble that someone from Napster gave Nullsoft the idea." That's a fairly

all the rave (173)

wild claim, and Shawn's earlier reaction gives evidence to contradict it.

While Frankel declined to comment, others who worked on Gnutella

dismiss any conspiracy. The concept itself was so obvious that any sophis-

ticated engineer involved in music- swapping would have considered it at

some point, said NuUsoft veteran Rob Lord. The hard part was writing
the code.
Frankel had done some serious thinking before deciding to compete
with Napster. The Nullsoft crew had played with Napster when it first

came out. "We looked at it and said, 'There's no way this is legal,'" said

Ian Rogers, one of the handful of employees at Nullsoft and a friend of

both Shawn and Dug Song, the wOOwOO security expert. Frankel,

Rogers, and Lord discussed the issue again as Napster grew at a mind-
boggling rate and staved off a court-ordered shutdown. They decided
they had to hedge their bet. The consensus was "It isn't legal —but if it is,

Winamp needs to do this," Rogers recalled. "If it's going to live, we

wanted that flinctionality."

GnuteUa would have had some major headaches, were it not for a
bout of self-restraint and the bonds of friendship. Just as the early Nap-
ster work had been done over an IRC channel that grew from a few
wOOwOO members to seventy or so Napsterites, rival Gnutella began in a
small IRC channel led by Nullsoft employees. Old Napster aide Seth

McGann, known as Minus to his wOOwOO friends, got into the Gnutella
channel for a bit of opposition research, criticizing the architecture of the
system and trying to learn more. Then he saw a posting from someone
who appeared to be in-house at Nullsoft. McGann used the information
he gleaned to hack the man's computer. Improbably, he succeeded in get-
ting in, and from there he reached a server where McGann found
encrypted source code as weU as the names and passwords of early users.

Debating whether to take the next logical step of the true black hat and
try to steal and crack the source code itself, McGann hesitated. But he
did begin boasting in the Gnutella channel about the access he had, offer-
ing up some of the passwords as proof. That provoked some excitement
from the GnuteUa developers, both those opposed to the breach and
those who wouldn't have minded taking the code and splintering from
the official effort. It also caught the attention of wOOwOO's Song, who
studied McGann's account of what he had done and realized that he

( 174 ) JOSEPH MENN

knew McGann's victim: It was Rogers, a friend of Song's from when they
rode skateboards together as teens. Song warned Rogers to secure his
machine and asked McGann to back off. McGann did as he was told. "I
had hacked into Dugsong's friend's machine," McGann crowed, peace-
fully enough. "I felt good afterward." Ritter, who had pressed Minus to go
after the code, agreed with the decision to drop the spy operation. "We
would never fuck Dugsong," Ritter said.

The Nullsoft team posted Gnutella on the company's site in March

2000. America Online fielded a host of media inquiries about the conduct
of its subsidiary, looked at the program, and gagged. It came to nearly the

same conclusion that the Nullsoft team had come to about Napster: If it

wasn't illegal, it was close. And it didn't help that AOL was in the process
of buying Time Warner, owner of Big Five record label Warner Brothers.
Aiding and abetting the theft of its acquisition target's intellectual prop-
erty wouldn't go over very weU. AOL ordered Gnutella deleted from
NuUsoft's pages within days. Soon someone using Frankel's IRC handle
"deadbeef" said he was wondering about "accidentally" releasing the
source code. Gnutella-like code did emerge soon, to the delight of file-

swappers, technophiles, and open-source enthusiasts. With Gnutella free

for anyone to tinker with and improve, it got much better, overcoming
some of the roadblocks to scaling.

If AOL's reluctance to embrace Gnutella delayed its emergence as a

powerful Napster foe, a quieter bit of corporate politics helped stop

another Napster rival from getting critical backing. IMesh was close to

Napster in structure but had some advantages, including the fact that it

was based in Israel, where it would be harder for the record industry to

attack. And iMesh beat Napster to the punch on one technical front,

known as segmented downloading. In segmented downloading, the sys-

tem identified segments within each song. Users were then shipped the
multiple parts simultaneously. The process "generally results in the fastest

possible transfer rate and almost guaranteed file transfer success," Shawn
wrote to his coworkers.
As a user innovation, segmented downloading was great. As a legal

proposition, it was a more interesting question. It offered a possible legal

advantage for the users, according to Dug Song, who was developing
something similar and offered it to Shawn. If files were split among mul-

all the rave (175)

tiple clients, each user would have "plausible deniability," Song wrote in
March 2000: "You can't sue anyone for offering illegal files when only a

few encrypted blocks are available" at each computer. Even if they

accepted that reasoning, Napster executives were more worried about

Napster than about its users. And like Unking the servers, they decided it

would have exposed the company by showing that it knew too much
about where songs were and that it had total power over the transactions.

So Napster didn't adopt segmented downloading. Instead, it went after

iMesh with a cloak-and-dagger.

The matter took on some urgency after Napster VP Bill Bales heard
that AltaVista, one of the first big Internet search engines, was looking to

get into music downloading by buying iMesh. That worried Shawn, who
wondered if AltaVista's deep-pocketed parent, CMGI, might merge it

with its own music start-up. Ritter went to work hacking the iMesh sys-

tem, and he found some potentially useful problems. Among other

things, the network put too much trust in its clients. Once a part of the

system, a user could hunt for songs —or a lot of other things, includ-
ing other users' passwords. "IMesh is a wanna-be hacker's dream," Ritter

told Shawn.
Recruiter Jessie Garrehy, meanwhile, had nominated AltaVista's head
of search technology, Don Dodge, for a job at Napster. Ritter went to

dinner with Dodge to discuss the position and brought a hidden agenda:
to kill any chance iMesh had of being acquired. Over dinner, Ritter casu-
ally ran through the state of Napster's competition, taking care to drop in
a mention of the security problem at iMesh. Dodge took it all in, and
AltaVista soon walked away from iMesh. Just to be on the safe side,

Ritter sent the holes he had found to his former colleagues at BindView
in Boston. He suggested that BindView issue a security advisory, which
might have scared away both iMesh users and potential corporate acquir-
ers. BindView's Benny Czarny, noting Ritter's conflict of interest, wrote
back: "I do not find that ethical." The security alert was never issued.

Concerned about the threats from Gnutella, iMesh, and others,

Napster tried again and again to link its servers properly. Shawn was get-

ting anxious both about others gaining ground and about the slow pace of

( 176 ) JOSEPH MENN

improvements to Napster's system, due to legal concerns, lack of staff, and
the distraction of executives more worried about getting venture money.
"Adding stuff was actually a big task," Shawn said. "I always had a big list

of things to do and bugs to fix. But the major factors were the lack of
people and some of the legal stuff. Not anything specifically, but just the
fact that —
we suddenly got sued there was just an aversion to changing it
because we didn't know what the rules were. We had no idea."
In a rare all-points outburst, on March 23, 2000, Shawn e-mailed
Eileen Richardson, Ritter, Parker, engineering boss Kessler, Liz Brooks,
Brandon Barber, and another executive, Chris Phenner. "Hey, all, I'm
sorry if this rant offends anyone — this is the stuff that has been KILLING

me for the last few months," Shawn wrote. "While we are making great

strides on the financing and legal fronts, the client and the community
are lacking behind. We all agreed very early that this is the most im-

portant aspect of our company. We have a list of kickass features that

have not been considered lately. We are about to do a release that's going
to hurt us more than help us. We need to start focusing on 'cool'
. . .

features. . . .

"Also, I frequently hear people talking about us as if we are unstop-

pable and immune to competition. We are assuming we are immune

because of our size —however our users do not reap the benefits [of] our

content depth. . . . our concurrent user count increases as we add [server]

boxes to the network, which in no way increases the amount of content

available per server." Shawn listed three priorities, in order: linking, the

ability to transfer not just music but other types of content, and a
redesign of the user interface. "The current production client is still using

my prototype design from a year ago ...:(," he wrote.

The technical team had already achieved some remarkable results,

considering the originality of what they were trying to do. They were par-

ticularly proud of the search engine, which Jordy Mendelson and Ali
Aydar had developed. Unlike Google or AltaVista, the mechanism had to

cope with a constantly changing index. "From the time Google crawls a
website to the time it actually shows up in a search window can take
weeks or months. We had to do the same thing in microseconds,"
Mendelson said. Shawn and Aydar made early passes at the system, and
Mendelson took it home to simplify it and make it faster. "I ended up

all the rave (177)

waking up in the middle of the night, writing out the initial implementa-
tion for the final algorithm in an e-mail to Ali, and promptly went back
to sleep," Mendelson said. "We ended up with a search engine that was
small, elegant, and so efficient that we stopped optimizing it because
sending the search results to the user took so much longer than perform-
ing the actual search."
By April, Richardson was convinced that the company's very survival

depended on a server-linking system that worked. In the middle of that

month, product manager Barber reported to her and to Kessler that the

engineering team was close, after thousands of hours of work. He said the

project might be completed in just ten to twenty days. Instead of a

quicker Band-Aid solution, in which only searches unsuccessfiil at one
server would be bounced to the next. Barber urged the executives to wait

for the full solution. "It's safe to say that Napster as a company is experi-

encing tremendous pressure from the outside, media, industry, legal and
financial concerns making demands, and it's important to react to them,"
he wrote. "However, I think it's incredibly important to make decisions

that will help benefit not only these variables, but our users (read: our

business)."

Instead, Richardson demanded the final linking method within days.

"We have tried at least two other times with implementations that did
not work," Richardson wrote to Barber and the engineers. "We cannot
and will not take a chance like that again. . . . LET ME BE CLEAR: THERE
WILL BE NO BUSINESS TO WORRY ABOUT IF WE ARE NOT LINKED BY
NEXT WEEK, NONE!" Soon enough, Ritter and Jordy Mendelson did lash
together Napster's servers into two massive clusters. In late May, Ritter
told the marketing and customer-service people that he had gone even
further, linking together those two clusters. For the first time, if a user

was looking to see if a friend was logged on, the user could find him or

her. And users could see what songs the friend was sharing through a fea-

ture that had worked poorly in the past, called HotList. "You know your
friend is logged onto Napster somewhere, and his username is

'biliary rosen sux cock.'" Ritter e-mailed the group. "Ail you have to

do is add him to your hotlist, and then click his username to see what
files he's sharing. Brilliant!"

Ritter assumed a press release would trumpet the dramatically

( 178 ) JOSEPH MENN

enhanced features, presumably using a less antagonistic illustration. But
Richardson checked with the company's lawyers and decided against it.

Why give out any more information than necessary about the company's
technology? Besides, it might provoke the record industry, which
wouldn't help Napster's increasingly crucial search for new funding. Users

would just have to stumble on the upgrade by themselves. The disap-

pointed engineering team tried to drop the public some hints. Each Nap-
ster user's screen included a box displaying how many users were logged

in and sharing that user's server. Once a week or so, Ritter or a colleague

would flip a switch for a few minutes, and the display would show how
many users were on the entire cluster. The number would jump from
about eight thousand to about four hundred thousand. Most users proba-

bly thought the figure was a bug and ignored it. The engineering team's

single greatest triumph wouldn't be acknowledged in the trade press for

another six months, and the mainstream press never noticed at all.

The Napster team had a different sort of politics to worry about

when it came to some of their other competitors. Napster's chief asset was
its software, and it was duly protective of its source code. But some of
Napster's biggest technological fans thought it should release the code.
They subscribed to the same widespread ethic as the original Napster
crew —pursuing hacking for flan and knowledge. But they also belonged
to the subsidiary ethic of the open-source movement, in which the code is

available for public inspection. The open-source movement was becoming

increasingly important in software development, and it is best known
today for using unpaid and widespread collaboration to turn Linux into a
viable alternative to Microsoft's Windows operating system. From time to

time, open-source enthusiasts would harangue Shawn and the others to

share the Napster secrets. Some of the more ambitious used technological
clues about the way Napster worked to reverse-engineer and clone both
the Napster client program seen by users and Napster's back-end program

for running its servers.

Among the first client clones was a buggy contraption called Gnap,
written by a teenager. After the author announced its existence on Nap-
ster's IRC channel, Ritter and Shawn quickly got hold of him in a private

all the rave ( 179 )

chat. They told him they didn't mind if he released the client program,
but they begged him not to post the source code for at least a couple of
weeks. The problem wasn't the competition, they said; the problem was

that others could use the source code to develop bot programs that auto-

matically connected to all of Napster's servers and repeatedly searched for

the same song. Ritter, Napster's security chief, had been too busy to write

software that would weed out such bots. The teen assured them that he

would hold onto the code. "The next day, that prick released it," Ritter

said. And the author added insult to injury, posting rhetoric about Nap-
ster's betrayal of the open-source movement.
Sure enough, bots soon started to scan Napster, straining the system
and allowing contractors hke NetPD Ltd. to search methodically for

users offering certain songs. NetPD, run by a man named Bruce Ward
out of Cambridge, England, was the firm that provided Metallica with
the screen names of the more than three hundred thousand Napster users

offering NetPD had arguably violated Napster's user

up the group's songs.
agreement, which banned bots, and Ward and Ritter engaged in a
months-long hacking dogfight as Ritter figured out where abusive
searches were coming from and shut them down, plugging holes in the

dike as they appeared.

More useful for garden-variety Napster users was a program written
by software engineer Chad Boyda called Napigator. That program imper-
sonated a Napster client when it contacted the real Napster system, but it

could also hop from server to server before Napster linked them. Napster
rejiggered its system to foil Napigator, and Boyda retooled Napigator to
fool the new system. Napster changed again, and Napigator changed

again. "They did what they should have done in the first place, and then
we couldn't stop it," Ritter said. Privately, Shawn thought that Napigator

was a good thing, as was Wrapster, which allowed people to swap movies
or documents over Napster by disguising them as MP3s. "Why are we
fighting napigator?" Shawn asked one Napster volunteer. "If our users

want it, our users are right. If somebody wants to make something that

makes it easier to navigate the network, more power to them. . . . Same

thing with Wrapster; people want to share additional content types. Why
fight it? We have to embrace what people want or we lose."
A far more serious threat to Napster came from an open-source proj-

( 180 ) JOSEPH MENN

ect called OpenNap. It was what Ritter had been trying to fend off as

long as possible: a knockofF of Napster's server system. With some tech-

nical sophistication, users could go to an OpenNap server instead of

Napster's, and there would be no way for Napster to make a dime, should

it survive the lawsuit and start charging for something. The development
of OpenNap's server and client unfolded before Ritter and Shawn in a

slow-motion nightmare they were powerless to stop. Developers working

on the effort did so openly, often communicating through an electronic

mailing Hst called NapDev. Programmers would ask each other what they
had gleaned about one aspect or another of Napster's workings, and they
would trade advice about variants of the Napster client program for non-
Windows operating systems, including the Macintosh, Linux, and Be.
(Among the names these knockoff efforts took were Macster, Knapster,
and even Crapster.) Ritter and Shawn quietly subscribed to the mailing
list, keeping their nervous eyes on the rearview mirror.
Both Ritter and Shawn felt conflicted about the open-source threat.
Napster was about tearing down the fences around intellectual property,

and now its own fence was under attack. It was particularly hard on Rit-
ter, who had long contributed to open-source projects in other areas. He
could easily imagine himself on the other side of the battle. And pride

made it even harder for both to keep silent on the mailing list as the

open-source developers figured out why Napster had done something

or thought they had figured it out — especially if they concluded that it

was simply poor design. Finally, a University of Washington student

named Evan Martin went too far, dismissing a piece of the system as

"shoddy programming." Ritter couldn't take it any more.

In early January 2000, Ritter wrote an open letter to the NapDev
open-source effort, making clear that he was speaking only for himself
and not Napster. It was a mixture of self-respect and moral defensive-
ness, reflecting a need to explain himself to people whose worldview he

largely shared, stock options or no. "We at Napster Inc. have our jobs to
do, and you have yours. You don't know why we implemented the things
we did, and we're not going to explain them to you, mainly because it's

not public information," Ritter wrote. "You can sit at your computer,
possibly between classes, or maybe during a company lunch break, or

whenever, and ponder the meaning of why certain things are as they are

all the rave ( 181 )

at Napster. You'll form an opinion, and one usually laced with some vari-

able amount of disdain, as past experience has shown. And of course it

wiU be wrong, because you have no idea what goes on behind closed
doors, and you assume that we're all idiots, as past and current experience

is also showing.

"Then you'll post it to this list, or to some other forum, and by the
hand of some perverse irony, it will suddenly become fact and spark dis-
cussion. Soon after, it will have spread all over IRC or e-mail lists or

Webboards or Bulletin Boards, and the world will go on, as it always

seems to, unresponsibly saturated with one more piece of misinformation.

We're not going to correct you. Yes, we hold the answers. Yes, you'll even-

tually find out most of the answers —no one's debating that (especially

since we're not trying to stop you). Reiterating that point over and over is

a waste of breath and bandwidth, and often times serves only to antago-
nize us.

"We can't give you any information because Napster is not some
garage organization working off of some cliche Pentium and 486 laptop,
but rather an incorporated company with a development team, marketing
team, bizdev [business development] team, and an executive management
team. Hypothetically speaking, if I were to have a strong desire to give
you all the information you needed to write a complete client, I couldn't.

It's not mine to give any more, it's the company's. . . . Oh yeah, and it

would be nice if you didn't assume we were all stupid, which is ignorant,

and a gross underestimation. Almost all the Napster developers are also
open-source developers."
Evan Martin wrote an immediate and public apology. "I didn't know
anyone would be offended. I didn't even know that anyone was listening!"
he e-mailed. "I'm sorry this has caused you so much grief. I'd like to reit-
erate that everyone who's taken the effort to get to this point has demon-
strated their dedication and respect for your product. Most of us just find
it fun to hack." Once the outside programmers discovered that Ritter and
Shawn were listening, they would occasionally ask polite questions about

why the Napster team had done the things that they had, or if they were

working on fixes to certain problems. Torn between protecting their work

and feelings of hypocrisy for protecting it, especially given everything that

was going wrong at Napster, the young men sometimes gave answers that

( 182 ) JOSEPH MENN

helped the other side. And Napster Inc. took something back from the
dialogue as well, eventually hiring the team that developed Macster for
use on Apple machines.
The struggle against open-sourcers still flared up from time to time,

most notably in the case of Stanford University senior David Weekly,

who had briefly alarmed the record industry earlier with his mass MPS
postings. Weekly reverse-engineered the Napster protocol and wrote code

mimicking it that he posted on his website. Engineering vice president

Eddie Kessler decided that Weekly had violated the terms of Napster's
license for all users, which forbade reverse engineering. Kessler wrote to

Weekly and ordered him to take the posting down. Weekly did so, then
helpfully e-mailed the NapDev effort instructions on how to find copies

of what he had written. "I'm not going to let them bully me!" Weekly
wrote. "And remember: linking to documents is perfectly kosher. Looks
like someone's already made a copy at http://lovenapster.tripod.com."

The open-source Napster effort became a natural place for fairly

sophisticated discussions about nontechnological matters, including

morality and ways to avoid copyright liability. After many Napster users

were banned for offering Metallica tracks, some of them blundered onto
the NapDev mailing list as well in their quest to get reconnected. "Is

there any other way to get back on or where is another MPS sharing

site?" one young AOL user asked. That ticked off a number of the hard-

working open-source programmers, one of whom shot back: "This is a

developers list, not a piracy assistance hotline." But someone else did tell

the requester what to do.

After it emerged that the Napster protocol temporarily recorded indi-

vidual users' computer addresses, called IP addresses, a debate in the

group ensued over whether Napster was putting its user base at risk for

legal action. "I think it's a damned huge security flaw," wrote NapDev
subscriber Ian Brown. "If the Recording Industry Association of America
decided to really go after Napster, it would be a cinch for them to write

some software that automatically trawled all clients logged in to a given

server for illegal content, then start legal action against the person."

What Brown and the others didn't know was that Napster was wor-
ried about the same thing. Looking for an answer, it had begun talking
with Zero- Knowledge Systems Inc., which made software for anony-

all the rave (183)

mous e-mails and Web surfing. Zero-Knowledge's system was fairly

ingenious. It designed each request for information from a Web surfer

like an onion, with layer wrapped around layer. When one of Zero-
Knowledge's servers received the request for information, by necessity
revealing where the request was coming from, the server peeled off that
information in the first layer and sent the rest on to another server. That
second server had no way of knowing where the original request had
come from. The process was then repeated, making communication
untraceable.

Napster tried to make a deal with Zero- Knowledge that would have
given its users absolute invisibility. Even more provocatively, it would
have allowed Napster to keep reaching users at corporations and cam-
puses that had banned Napster access. "As more and more institutions

block access to our service, finding a way to continue delivery of our

service becomes more and more urgent," Ritter wrote in January to a

Zero-Knowledge executive. Inside Napster, Ritter pressed Kessler to help

put the deal together, using Shawn's desire for continued hypergrowth as
a mild threat. "Shawn (napster) and I are both getting very fidgety over
the blocking of our service at various institutions, and would like to at

least see something happen," Ritter wrote. A minute later, he added: "And
you know Shawn, if something doesn't happen soon, we're likely to see a

cowboy roaming the halls." The talks with Zero- Knowledge failed
because the demand for bandwidth from millions of users would have
been too large for the architecture to handle.

Consumers hunting for free music and hackers looking for some-
thing to do were not the only groups inspired by Napster's innovation and
raging popularity. Big companies also took note and began to respond, in
some cases by striking alliances with hackers barely older than Shawn.
Peer-to-peer, they realized, was a very, very big deal. Longtime Intel

Corp. chairman Andy Grove, the head of the world's largest microproces-
sor maker and a man not known for hyperbole, declared: "The whole
Internet could be re-architected by Napster-like technology." Intel wrote

own programs for allowing employees to grab files from one another.
its

With improved network flow and cheaper storage off the main servers,

( 184 ) JOSEPH MENN

the program cut costs by 10 percent, according to Intel vice president
Doug Busch. Intel alone poured millions of dollars into peer-to-peer
research, and other blue-chip firms such as Sun Microsystems worried
that they were missing something huge. They began a rapid search for the

next logical step after Napster.

In Sun's case, the search led to a fresh UC-Berkeley graduate named
Gene Kan, whose improbable rise to success on the peer-to-peer band-
wagon was at once faster, easier, and far more lucrative than that of his

friend Shawn Fanning. When Gnutella first burst onto the scene from

Nullsoft, the Napster team had been surprised to see Kan quoted more
than anyone else, including publicity-averse Justin Frankel, the lead
writer of the software. If Kan had truly become the lead developer on the
project, Napster's engineers thought, maybe they could relax: Just months
earlier, Kan had asked for a job with Napster, and he had bombed by dint
of personality.
Kan had applied at Napster as a server engineer, boasting in a group

interview about some of his previous technical accomplishments. When

Jordy Mendelson pulled out a calculator and reported that the math in
one of his claims didn't make sense, the obviously talented Kan grew
defensive. He declared that he had been a software developer for a dozen
years and knew what he was talking about. Since Kan appeared to be in

his early twenties, Ritter was incredulous, impulsively asking how old
Kan was. Kan immediately warned that the question was illegal and that
he could sue. One of Napster's personnel chiefs pulled Ritter out of the
meeting and told him that Kan was correct, that Ritter had unknowingly
put the company in danger. So the team decided to keep the interview
going just to build a case for not offering Kan a job on other grounds.
That wasn't difficult to do. The engineers sent Kan to see supervisor
Daphne Dembo, who gave many job candidates brainteasers to see how
they were at problem solving. When she posed one to Kan, he said he
wouldn't answer it because it was insulting, and that was that.

Kan's route to fame and fortune began later, at a lunch for car enthu-
siasts in Sunnyvale. He emerged from the meal to find a young man
leaning on Kan's treasured and heavily modified Mazda RX-7. The pos-
ture first struck Kan as offensive, but it was intended to show respectful

interest. The young man, who appeared to be in his late twenties but was

all the rave (185)

only nineteen, was Cody Oliver, most recently from Alabama. An unre-

pentant car freak, Oliver was also a programming ace working as a con-
tractor at Nullsoft. Kan and Oliver became friends and eventually
roommates, just two of the large number of peer-to-peer elites, including

Shawn Fanning, who would be brought together over RX-7s.

"I've always Hked cars, but I got into RX-7s because of the guys at

Nullsoft," Shawn said. He wasn't content with his first RX-7, so he tried

to sell it on eBay. That became a news item for the website CNet, which
embarrassed Shawn with speculation that things must be going badly for

him and Napster financially. So Shawn delisted the car and sold it to

Oliver. Shawn bought another in Florida that didn't quite suit him either,

and sold that. "I was just trying to find one I really Hked, and I finally

found the silver RX-7 that I'm in love with," Shawn said. "I mean, it's a

Mazda, and it's pretty fast stock, and if you fix all of the weird flaws with
it and do a few minor changes to it, they're pretty fast cars."

Car-club meals and late-night drag races on Fridays and Saturdays

brought out Nullsoft coders Hke Frankel and his Gnutella coauthor Tom
Pepper, Oliver, and some of the Napster crowd, including Parker, with an

occasional appearance by Shawn. Almost every weekend, the crew would

meet at office parks abandoned by workday's end in Milpitas, Santa
Clara, or other spots. With an average age around twenty, the young men
had unlikely amounts of disposable income and a lot of workplace tension
to get rid of At a racetrack near Sacramento, Shawn joined in the drag

racing, where speeds exceeded one hundred miles an hour. "I like acceler-

ating, but that was the first time I could actually open it up and really

learn the limits of the car," he said. Trouble with the police wasn't

unheard of "Some of the top people have been arrested," said Oliver,

naming no names. Oliver had the most reason to be annoyed when the
police ended an evening's festivities, since he usually won the races even

when he loaded up his car with spectators.

Nobody cared who worked for which company. "There was no rivalry.

Everyone had a lot of respect for what everyone else was doing," Kan
said. "Nobody had any kind of an attitude. We had fian." Through his

new roommate Oliver and the other people at Nullsoft, Kan kept tabs on
the development of Gnutella. After AOL shut it down, the Gnutella pro-
gram itself was released in the wild, but not the underlying code. Pro-

( 186 ) JOSEPH MENN

grammers outside of Nullsoft began collaborating to reverse-engineer,

recode, and improve the program. As they made progress, the twenty-

three-year-old Kan offered to help. "I was late to the game," he said. But
when an Associated Press reporter contacted some of the real leaders of
the project, they referred the reporter to Kan. A photographer showed up
to take his picture, and Kan suddenly became the face of what was being
hailed as the most likely Napster successor.
Kan stuck around the open-source Gnutella effort for a few months.

In addition to his unofficial-spokesman role, Kan's personal connections

at Nullsoft are extremely hkely to have enabled him to help the other
programmers. Giving away the source code developed on AOL's nickel
would have violated Frankel and Pepper's obligations to their employer. It

also might have opened them and the company to massive Uability if the

record industry sued over the program. While Kan insisted in an inter-
view that the open-source Gnutella code was redesigned, not leaked,
there is an area in between, filled with helpful hints, suggestions, and
carefully worded questions about what methods the new developers were
trying. Asked if the Nullsoft team at least gave the open-sourcers direc-
tion by means of winks and nods, Kan remained wordless. Then he
winked, and he nodded.

Along with some technical drawbacks to a decentralized system

like Gnutella, there was a profound economic one: There was no clear
way for the creator of a system of ad hoc networks to make any money off
of it. So Kan and others who were more business oriented began rethink-

ing the entire issue. Kan spoke with Oliver and another friend about how
to overcome that problem and avoid the "bad rap Gnutella was getting
because it was associated with piracy and porn and all these kind of

muckraking things," Kan said. During two weeks in June 2000, the three
came up with a prototype product and called it Infrasearch.

Based on the Gnutella framework, Infrasearch was a search engine

and sharing service that allowed all types of files to be swapped. In a

demonstration, Kan's team linked together a calculator, a database of

pictures, a collection of news stories, and a website that tracked stock
prices. Typing in "cat" as a search term returned a picture of a cat, a price

all the rave ( 187 )

quote on Caterpillar Inc. (ticker symbol CAT on the New York Stock
Exchange), and stories about kittens. There were also big challenges,

including scaling and the security problem inherent in trolling an unregu-

lated Net that could return viruses to the searcher. But now that Napster
had paved the way, investment dollars were laughably easy to get. Kan's

status as a public figure in tech publications brought the fledgUng Infra-

search site some press, and within days venture capitalists began calling.

One would-be investor simply had his secretary call Kan and ask for the

address so he could send a check. Kan asked Netscape's Marc Andreessen

to check out the site, and Andreessen, who had described peer-to-peer

technology as a "once-in-a-generation idea," became an early enthusiast.

With the rush of investor interest, Andreessen "helped us sort out what
to do," Kan said.

Among the callers were VC firm Redpoint Ventures and Ron Con-
way, who was never one to let an opportunity go by. Redpoint listened to
a presentation about Infrasearch, which didn't include much of a business

model. "We just wanted them to pay our biUs for a while, to see where it

went," Kan said. Redpoint offered to invest with a number of conditions

that would make the start-up more serious. Conway was less concerned
about the road map. He took the Infrasearch crew out to dinner and
offered money right away, with no strings. Young CEO Kan accepted and
shook hands on the deal. Kan thought that was it, that now his team
could get to work while the check was en route. But with competing
investors stiU sniffing around, Kan soon got a caU from Conway's more-
organized partner. Bob Bozeman. "Ron wants to get married," Bozeman
said. "Ron wants to get married today!'' Bozeman dragged Kan to a

lawyer's office, where the contract for the $2 million deal was signed.
"There was no specific business model," Bozeman recalled. "Gene was
getting some good notoriety in the press, so we knew there would be a lot

of people circling." Andreessen also invested, as did two of Napster's

advisers, early Excite Inc. executives Joe Kraus and Brett Bullington.
Kan and his coworkers hired more than a dozen other staffers. And
they did develop a plan to make money: They would charge websites to
be listed in Infrasearch's service. A screaming endorsement came from
Red Herring magazine, named for the preliminary prospectus before an
IPO. Red Herring had cozy ties to Conway, who owned a piece of the

( 188 ) JOSEPH MENN

publication, and to the rest of the VC establishment. It put Infrasearch on

its cover in December 2000 with a headline blaring that the tiny firm

would be "bigger than Napster." The article noted that Infrasearch had no
revenue to date, little technology that others couldn't imitate, and a
swarm of competitors in the exploding post-Napster field. But by then,
media and VC frenzies had erupted over peer-to-peer, and the corporate
world was paying close attention to all of it. Perhaps the only thing more
surprising than Red Herring crowning a Napster successor so early was
what Sun Microsystems did about it. Urged on by cofounder and chief
scientist BiU Joy, a legendary engineer for two decades. Sun in March
2001 swapped about $10 million worth of stock for Infrasearch, hiring
Kan and his car-happy colleagues in the bargain.

Joy had been working on a system of ground rules for peer-to-peer

transactions, dubbed Jxta and pronounced "Jucksta." He folded Infra-

search into the project and launched Jxta weeks later. There would be no
charge to download Jxta and join in its searchable network. And Sun
made the project open source, releasing the code for others to improve as

long as Sun approved. Dozens of companies agreed to participate in the

effort, and thousands of software writers downloaded the code. But more
than a year later, the technology was stiU far from ubiquitous, and it

wasn't clear how anyone could make any money from it. Kan, however,
got a pile for himself and his employees, and they got to work on things

that interested them at Sun. Asked later why more hadn't happened with

Infrasearch and Jxta, Kan pointed to the book Accidental Empires, by

Robert Cringely. The moral of some of Cringely's technology stories is

the same as that in Clayton Christensen's subsequent bestseller The Inno-

vator's Dilemma: Innovation comes from those with no stake in the status

quo, which necessarily means smaller companies. When big companies

take over efforts at innovation that were successful elsewhere, they assign

the projects to managers unskilled in innovation. The managers lack that

ability because they have risen using a contrary set of skills, those needed
for surviving in a corporate hierarchy full of entrenched systems. The
effort to keep innovating almost always fails. Tragically, Kan also incor-

rectly saw himself as a failure. After a long battle with depression, he

killed himself in June 2002.
Napster had started everything. It had proven that its technology

all the rave ( 189 )

worked and that it was vitally important. So it is surprising in some ways
that major corporations were only pursuing ideas like Kan's and not offer-

ing to buy Napster outright as well. Once in charge, such buyers could

have let the courtroom gamble ride, adapted the system for different uses,

or licensed it to other companies to apply as they wanted. Back in the

already long-ago summer of 1999, entrepreneur Ben Lilienthal had
wanted to do just that. But by now, it was simply too late. Millions of
consumers would have howled if the switch had been turned off. Big
companies weren't conditioned to risk losing a mammoth verdict, which
might have been applied even for wrongdoing before they took control of
the firm. And when there were expressions of interest, Eileen Richardson

was reluctant to do much talking: If she had, the big companies could
have figured out how to copy what Napster had done. Instead, the

besieged firm would have to make its own way, raising money from the
professional risk-takers, the venture-capitalist kingpins of Silicon Valley.

( 190 ) JOSEPH MENN

 venture games

FROM THE BEGINNING, CEO EILEEN RICHARDSON'S MOST

important mission was getting venture funding. Eventually, she would be
in good shape to secure it. By the spring of 2000, the market was at an

all-time high, and many venture firms were drooling over Napster's unbe-
lievable statistics —more than 10 million users. But before Richardson
could get what she thought was the right firm and the right terms, she
would have to battle John Fanning more fiercely than she had at any time
since the two met in October 1999.
Ahead of that first meeting, employees warned Richardson that Fan-
ning was a big problem who had hustled his nephew Shawn and was out
for only himself Ali Aydar, her first hire, told Richardson in all serious-

ness that his mother would kill him if she found out he was working for
another John Fanning company, since Aydar had been taken advantage of
so badly at Chess.net. But as the time neared for Fanning to fly out and

( 191 )
inspect the operation, Richardson began getting warnings of another,

unexpected sort. "You're going to love him," Sean Parker told her. "He's

incredibly charismatic."

Sure enough, when he appeared. Fanning was charming, telling

Richardson how thrilled he was that she was running the company. "I was
surprised he was so likable," Richardson said. "I tried to be nice and listen

to him." Richardson made a distinct impression on Fanning as well: As

soon as she was out of earshot, he turned to Parker and whispered, "She's
hot!" But the honeymoon was brief As soon as Richardson dug into the
books at Napster, she found herself in unfamiliar territory. For starters.

Fanning and his marketing deputy, Tom Carmody, were each drawing
monthly salaries of about $5,000 through December 1999 despite having
no executive positions. "It was so far out of what I was used to," Richard-
son said. Yosi Amram's initial $250,000 investment also went to Hull and
was under Fanning's control for far longer than Richardson had expected.
Fanning told her he was paying office expenses and salaries. Then he
stalled her, telling Richardson that the rest of the money had been trans-

ferred to San Mateo. Finally, after Amram stepped in and insisted,

Richardson got control of Napster's money and cut off the payments to

Fanning and Carmody. By then, $62,000 was gone, she said. Amram said

he doesn't recall how much Fanning spent in Hull.

It wasn't even easy to sort out who owned how many shares in the

company. Amram had bought the entire issue of Series A Senior shares,
which had special rights, while the others had mainly Series A Junior
shares. Amram paid 20 cents for his shares, while Richardson and Bales
said they paid 30 cents, both to Fanning's personal account. And Amram
got another million shares of the Series A Junior direct from Fanning for
what Amram said was 2 cents each, a mystifyingly low price. In declining
order of their stakes, Napster's junior holders included Fanning, Shawn,
Amram, Jim Gidwitz, Bill Bales, Richardson, Aydar, and Brian McBar-
ron. It remains unclear exactly how much John Fanning made by selling

his shares through the course of Napster's life. But a capitalization table

reflecting the state of things after the Series A round shows him with
fewer than 5 million shares, down from the 7 million he took when he
incorporated the company. Based on what Amram, Richardson, and Bales
say they paid for those 2 million shares, Fanning made more than

( 192 ) JOSEPH MENN

$300,000 just on the move to San Mateo. Richardson and Parker believe
he eventually cleared roughly $1 million, a figure that Aydar and a major
Napster investor confirmed was in the ballpark.
Amram's extra million shares, the ones Fanning sold him at a

bargain-basement price, were "the chess move John made to get Yosi on
his side" during disagreements among the directors, Richardson later
concluded. Bales figured Fanning needed to do something special for
Amram to get him involved at aU, since Amram had lost money at

Chess.net. When the weekly board meetings had a key issue, Amram
"didn't really vote with John, but he would try to mediate. It meant noth-
ing got decided," Richardson said.
Amram said he wasn't unduly influenced by the cheap shares. But
he agreed that he was stuck in the middle on many topics. "I don't

think [Napster's problems were] either John or Eileen's fault," he said.

"It was a combination of their personalities. [Napster] blew a number of

opportunities by zigzagging. It didn't have strong, clear leadership with

a mandate."

Fanning sometimes directed Richardson to sell more of his shares,

with the company bearing the administrative expense of the transactions.

Richardson believed that was improper. Kirk Hanson, executive director
of the Markkula Center for Applied Ethics at Santa Clara University,
agreed that for such expenditures to be appropriate, either board approval
or a written agreement would have been required. Fanning's private sales

of Series A Junior stock were at a range of prices. So were Napster's sale

prices, but they rose in a more conventional manner, from 30 cents a

share in the A round to 80 cents in the B round that closed in December.
In some of the disagreements over his personal stock sales, Fanning found
an ally in Amram, who was inclined to support anything that would
reduce Fanning's equity stake. Amram was spending most of his energy
raising money for and running ValiCert, which authenticated Internet
transactions. Some of the stock transactions there were enough to raise

eyebrows as well when ValiCert went public in 2000.

ValiCert filed for an IPO early that year, eventually raising $40 mil-
lion in the fall. The prospectus for the IPO revealed a Byzantine capital

structure similar to Napster's, with Series A Junior preferred stock, Series

A Senior preferred stock. Series B, and Series C shares. It also showed a

all the rave (193)

loss of more than $17 million in 1999, a reverse stock split, and the resig-

nation of PricewaterhouseCoopers as the company's auditor. The most

intriguing bit was buried in a footnote to the financial statements. It

showed that the Series A Junior shares had been sold three times, in

March, April, and October of 1996, at prices "ranging from 0.8 cents to
7.5 cents" — a spread of more than 800 percent. John Coffee, one of the
most widely cited securities-law experts and a professor at Columbia Uni-
versity Law School, said such sales are legal as long as they are disclosed.

"Antifraud rules might be violated if you fail to provide material informa-

tion," Coffee said. "It may be material to investors buying at $5 that it

was available to another investor at $2 a week ago."

ValiCert's Series A sales occurred before Amram joined the company.
But he was the one who took the heat for them from angry investors.

ValiCert angel investor and entrepreneur Gary BCremen confronted

Amram, even threatening to sue over the variable pricing, but Amram
told him he'd regret it: "Maybe you're right. Maybe I'm right. But if you
sue, none of the venture capitaHsts in the VaUey you want to talk to will

ever do business with you again." Kremen backed off.

Even with fliU disclosure, selling the same class of shares at different

prices, as ValiCert and Fanning did, is outside of the norm. Steve

Humphreys, a CEO at three companies, an associate of Amram's, and an

angel investor in Interwoven and other firms, said he steered away from
that sort of hustle. "I wouldn't do it that way. But why I wasn't
that's

enough of a hypester for the environment," said Humphreys, who now

heads the firm ActivCard SA. "It's weird, and it's not the right way to do
it." Humphreys wasn't involved at Napster, but he said the company's

payments for stock transfers, salary for John Fanning, and other question-
able practices weren't atypical for start-ups in their earliest stages. "Tradi-

tionally, it happens in the first two or three years of a company's Hfe, and
it gets cleaned up in the next four years, before you go public."

During the bubble, that kind of evolution was so telescoped that the

cleanup phase often disappeared.

Fanning and Richardson argued often during his visits and board
meetings in which he participated by phone. After Richardson stopped

( 194 ) JOSEPH MENN

the company from footing the bill for transactions involving Fanning's

stock, Shawn asked her for advice on how to sell some of his own shares,

and she gave him the name of a lawyer. During the next board call,

Richardson mentioned that Shawn was using an outside attorney, just as

she wanted Fanning to. Fanning seemed incredulous that his nephew had
consulted Richardson instead of coming to him. "I find that unbeHev-
able — that he would ask you for help," Fanning said. Richardson, listen-

ing along with other Napster executives in the company conference room,
drew in her breath. "John," she said. "Fuck you."
The pair also argued over what stance to take against the record

industry. Richardson wanted to keep them at arm's length, while seeming

to be cooperative. Fanning didn't even want to pretend to cooperate.

"Fuck the record industry," he said during one meeting, according to
Richardson. During another fight, she took Fanning into the conference
room and told him he was making her sick to her stomach. She said she

was trying to do what was right for the company, including lining up the
right venture firm. "You know what you're worried about? John fiicking

Fanning," she told him. The next day, he came in and gave her flowers.

Vice President Bill Bales said that he had tried and failed to get Fan-
ning to back away from trying to manage the firm. "John is an egotist,"

Bales said. "He's a wildcat." But Bales said that he didn't fike what
Richardson was doing at the company, either, and that she handled Fan-
ning the wrong way. "She was becoming almost obstreperous. She didn't
use psychology," he said. Once, when Bales suggested that Richardson tell

Fanning she was sorry about something, she said, "Tm not going to apol-
ogize to him for anything,'" Bales recalled. "Maybe it was integrity. I

don't know."

Unfortunately, Bales contributed to the problem. Already averse to

taking direction, he argued with Richardson and went behind her back
repeatedly to complain to both of the other directors. Sick of the armed
standoff" between Fanning and Richardson, at one point Bales told
Amram that one or the other had to go. "He didn't agree about that,"

Bales said. "He was like Switzerland. That could have been a mistake."

Bales and Fanning developed a back channel, frequently e-maifing

each other about a range of ideas, Napster and non-Napster, with
Richardson remaining oblivious. As his relationship with Fanning deep-

all the rave ( 195 )

ened, Bales felt more comfortable doing business the way he saw fit,

including in his efforts to recruit new executives. High on his list was
Rob Lord, the young director of online strategy at NuUsoft, maker of the

Winamp MPS player. Lord had first heard from Napster when John Fan-
ning called him during the summer of 1999 and proposed an alliance,

since most Napster users already relied on Winamp software to play their

songs. Lord looked at the site and discussed what Napster was doing with
his handful of colleagues. "We agreed very quickly that they would be
sued off the planet," Lord said. In October, Lord's name came up as a

possible hire in an executive staff meeting at Napster. Richardson was

worried that Nullsoft was more likely to be a competitor than an ally, and
she wanted as tight a lid as possible on what Napster was doing, since

Napster's system wasn't that hard to imitate. The important thing was
to maintain the critical mass that came with being the biggest provider,
she felt. Led by Richardson, everyone at the meeting agreed not to go
after Lord.
Yet Bales went ahead anyway, swearing Sean Parker to secrecy and
taking him along to meet Lord. Parker, aware that Bales had his own
relationship with Fanning, wasn't sure what to do and elected to keep
quiet. Lord told Justin Frankel and the others at Nullsoft that he had no
interest in leaving but would agree to a meeting to see what Napster was
up to. Richardson found out about the get-together later and came to a

second dinner with Lord to close the loop. There she made Lord sign a
nondisclosure agreement, and to the extent that Lord's real mission had
been to gather intelligence, he was soon frustrated. "They weren't being
forthcoming enough to even recruit me. Which made me think the situa-
tion was even worse than I'd imagined," Lord said. "If they had given me
a great story, I might have been interested, but I didn't hear it." Lord also

showed less optimism than the Napster crew did about the company's
prospects. "What about the lawsuit?" he asked, long before the record
industry acted. Richardson looked stunned. "What lawsuit?" she asked.

The lawsuit that is obviously going to be filed, he replied. Richardson was

embarrassed. "He knew a lot more about copyright and intellectual-

property law than I did," she said.

The dinner didn't lead anywhere. But Shawn developed his own rela-

( 196 ) JOSEPH MENN

tionship with Lord and with Frankel, the wunderkind who later

unleashed Gnutella. Using instant messages, the young men would dis-
cuss coding a little, cars and women more often. A year later, when Nap-

ster was in its darkest hour. Lord was at his grandmother's house when he

got nearly simultaneous instant messages from Shawn and Frankel. His

grandmother didn't understand how both had traced him to her house.

Lord patiently explained that messaging systems were based on log-ons,

not physical location. Then she asked who his correspondents were.

"Well," he said, "they're both my friends. This one has always done what
he liked, building tools for listening to music on the Internet. And he just
sold his company for $100 million. And my other friend —he also did

what he wanted, building tools for listening to music on the Internet.

And he's being sued for the gross national product of Europe." Noting
that his grandmother seemed concerned, Lord explained some more.
"See, this is what the Internet is aU about. When I was in college, the

worst thing that could happen is you could throw up in your dorm room
and get kicked out. Now, with the Internet, you can be up $100 million

or down billions."

One day near the end of 1999, after the recording industry had indeed
filed suit, Bales called New York investor Jason Grosfeld. Napster was

raising its second round of financing. Bales said. Since Grosfeld had

nearly invested when the company was back in Hull, Bales wanted to

know if he still wanted in. If so, now was the time. Grosfeld was intrigued

but skeptical, given the history and his dealings with Fanning. During the
call, Grosfeld realized that Bales and Richardson didn't know how close
he had come to being the lead backer of Napster that summer and what
had gone wrong. He guessed that Shawn and Parker had kept quiet about

the early financing quest so as not to spook the new managers. Grosfeld

said he would consider coming out to San Mateo for a meeting if Bales

gave him the capitalization table, the list of who owned what share of the
company. A basic document, the cap table is essential for funders because

it makes no sense to invest without knowing how much of the company

you're getting. Yet in all his dealings with the first incarnation of Napster,

all the rave ( 197 )

Grosfeld had never seen one. Bales put Grosfeld off, saying he couldn't

work up a cap table yet because he didn't know who was investing in the

new round. Grosfeld said that was fine; Bales could just show him the
one reflecting the status quo. Bales, himself a large shareholder, said he
ought to be able to put one together if Grosfeld came out to visit. Or,

he said, John Fanning would fax Grosfeld one. Right, Grosfeld thought.

He laughed out loud.

With low expectations, Grosfeld nonetheless decided it was worth
the trip to see if Richardson and the others had wrested control from
Fanning and if they had sorted out the legal issues. Parker picked him up
at the San Jose airport, and on the way north through Silicon Valley, he
filled Grosfeld in on the events of the previous three months. "These guys
are totally in the dark about Fanning," Grosfeld thought. "Eileen and
Bales have no clue." When he arrived at Napster, Bales still didn't have a
cap table to show Grosfeld, who assumed the worst. "I don't think you

understand the ownership of this company," Grosfeld told Bales and

Richardson in the conference room. He said he wouldn't invest unless
they gained control of Napster in the new round, and Bales assured him
they would. Grosfeld said he didn't believe them, and he recounted Fan-
ning's negotiation games. "I kind of spilled the beans about my experi-

ence," he recalled. When he was through, Richardson just stared, her jaw
literally hanging open. Bales got up and walked to his nearby office, put
his feet up on his desk, and dropped his head in his hands, not emerging
even to tell Grosfeld goodbye. Grosfeld drove to see Amram before
leaving, and they chatted amicably. "Keep me in mind if you get things
straight," Grosfeld said, and he flew home.
There was a natural tension in Bales's job, even if he did it correctly.

In addition to seeking investors, he was on the lookout for a CEO that

could replace his boss. It was a delicate proposition, made all but impossi-
ble when Bales mixed the two overtures. If he was interested in a poten-
tial fiander whom he also saw as a potential CEO, he was essentially
asking that person to invest in a company whose management needed
changing —not the most assured of come-ons. And may
at times Bales

have overstressed the point about the need for a new CEO. One of
Bales's multipurpose targets was Peter Macnee, who headed a New York
Internet firm called FortuneCity.com Inc. Like dozens of its competitors,

( 198 ) JOSEPH MENN

FortuneCity had gone public at a time when investors didn't care about

profit. Even though the company was losing money, it had raised nearly
$100 million in an IPO. Like TheGlobe.com, FortuneCity offered users
free homepages on the Web. It had added other services as well, including

places for users to store digital music in private or public libraries. So

there was some logic behind Macnee considering putting the company's
money, or its high-flying stock, into Napster. In late 1999, Macnee
fielded separate calls from both Fanning and Bales. Fanning "was being
very coy," Macnee said. "He said everyone and their brother wanted to

invest, and he was going to be very choosy." Bales was more persistent,

calling repeatedly and coming to meet Macnee in New York. Bales went
over Napster's prospects and confidently predicted that the company
would win in court. "Bales struck me to be, for his times, a very shrewd
entrepreneur," Macnee said later, "but sort of made for the time: a wheeler

and dealer made for the up market." Bales never offered Macnee a job,

"but I sensed him recruiting me. It was clear he had no love for Eileen,"
he said.

Macnee was interested enough to fly out to San Mateo, where he met
Richardson, technology chief Eddie Kessler, and, briefly, Shawn, who was
wearing a black Napster baseball cap. Macnee wasn't impressed by
Richardson, who was "all over the map," he said. Later, Macnee checked
with his firm's lawyers and a former RIAA executive to get their take on
the lawsuit. He came away thinking there was a much greater risk of

Napster losing than its executives let on. He asked if the company would
indemnify FortuneCity if the firm invested and Napster lost in court, and

they told him no. That turned out to be the deal breaker. "For us to take
on a legal battle like that would have been nuts. We just said, 'Let's stick

to what we know about,'" Macnee said.

Another CEO candidate, Ernst & Young technology strategist Yobie

Benjamin, wasn't deterred by Bales, Richardson, or even the legal
dilemma. He was gung ho through all the interviews until he spoke by

phone with John Fanning. When Benjamin asked Fanning about the
financial might of Napster's enemies. Fanning told him: "I'm going to buy
Universal. I'm going to buy Disney." Benjamin came to his senses and
dropped out of contention for the job. "It was a total megalomaniac view
of the world," Benjamin said. "This will be the ultimate business school

all the rave ( 199 )

case study: How do you fiick up the greatest opportunity on the planet?
It's a tragedy bounded by greed."
Whatever else Bales was, he was a true believer. He had plowed a lot

of his fortune into shares in the company, even borrowing $100,000 from
Amram to invest more, and he worked without a salary. "I gave every-

thing I had to Napster," Bales said. He met with some potential Napster

investors without Richardson knowing. When he was found out, he

begged Richardson not to fire him. More than once, Bales broke down in

tears as he asked Richardson to give him another chance. Still a soft

touch, she did each time. His continued presence was hard on many of
the Napster faithful, including Jessie Garrehy, who sat a dozen feet from
Bales in the Xtime office. Bales was spreading a rumor about an evening
of excess shared by Garrehy, Richardson, and John Lee. After Garrehy
found out and confronted Bales, he cockily told her that since it was true,

it didn't matter. Back at her desk, Garrehy picked up a full mug of coffee
and hurled it at Bales. The mug struck the wall between Xtime and Nap-
ster and exploded in pieces.

Richardson was outraged by Bales's schemes and by the gossip. But

the final straw came only after Ali Aydar and Ritter had too much. The
engineers told their boss, Kessler, that they would quit if Bales wasn't got-

ten rid of immediately. Kessler had already warned Richardson that Bales
and Fanning were plotting to get rid of her, and Aydar and Ritter con-
vinced him that now was the time to act. "If he doesn't leave, I'm leaving
too," Kessler told Richardson. Informed of the situation by Richardson,
Bales figured Ritter was a hopeless case, since he was dating Garrehy. He
thought his best shot was to turn Aydar around, which might sway
Kessler.

Bales blasted off a desperate e-mail to Aydar, copying Richardson,

John Fanning, Amram, Shawn, and Kessler. "I was told by Eileen that
you were walking if I didn't leave the company by 5 p.m.," Bales wrote

just after that hour on Friday, December 17. "I've gone back over aU my
e-mails with you, and they stand as proof of my feelings for you. It was a

shock to hear Eileen say this . . . but I'm open-minded enough to hear
your side of the story." Then Bales attacked the company itself, voicing

legitimate gripes shared by others but also displaying much of his special

( 200 ) JOSEPH MENN

mind- set. "I keep asking myself the question over and over and over
again . . . why is this stuff happening at Napster? Why does the place

smeU like a rotten egg? If it's going to stink like this my vote is to flip it

and move on. You absolutely cannot build a business around an environ-
ment so loathsome."

Shawn, who normally kept away from personnel explosions, was

stunned at the public airing of Bales's grievances. Copying the entire
board was inappropriate, especially since Bales lashed out both at the

long-suffering Aydar and at the general atmosphere. And it was never a

good idea to give his uncle more temptation to swoop into action.

"DUDE," Shawn fired back immediately to Bales alone. "Why did you

forward a message of this nature to everybody? Was this a mistake? If you

intended upon finding out Ali's story you probably should have cleared it

up with him alone before broadcasting this message. This is just wrong!"
Richardson finally sided with Aydar and the others and told Bales he
was fired, that he wouldn't be working through the end of his six-month
term. Bales didn't take the news well. Others in the office were concerned
enough that they called Kessler to warn him that Bales might be headed
his way. Kessler, in turn, took the threat seriously enough that he called
the police. Bales never showed up at Kessler's house. But soon after,

Richardson was shopping near home in a Fry's Electronics store and

turned around to find Bales up close and staring at her. "He'd been fol-
lowing me. It was freaky," she said.

Just firing Bales wasn't enough to stop him. Since he believed Fan-
ning stiU held the real power at the company, he launched an audacious
bid to take over the most important aspect of Napster's efforts, from his

own view and Fanning's: getting money fast. In an e-mail sent in January,
Bales wrote again to Fanning and Amram. "This should not be for-
warded to anyone," he began, "but please note that it is for the record.

Bottom line: is it fair to ask Eileen to bring a VC?

"I don't Eileen [sic] has the courage or experience to get us a VC, or

even understands the process of raising money from VCs. ... I wiU be
disgusted if we don't get a VC and we let the momentum dissipate with

all the rave (201)

our current options. . . . Get me involved and I will be accountable to
YOU for bringing the financing issue to a close. Yosi, what about provid-
ing the value of VC introductions? John, please do a better job of manag-
ing the board. This is critical . . . the fortunecity deal is a longshot. We
must keep our options alive."

Fanning was inclined to go with Bales. He responded to both Bales

and Amram: "I totally agree. I am flabbergasted at the notion that I

brought in professional management with the specific focused goal of

getting the company venture financed, hopefiilly by KP [Kleiner Perkins].

It's been 5 months and we are no closer today than we were then. I'm
really disgusted by the lost opportunity. John."
Amram, stepping in once more as mediator, then added his opinion:
"I don't think saying we are no closer today is fair." Fanning replied with
the last word, saying that in his view the problem was exacerbated

because Napster had grown too valuable. "Not to be argumentative but

we may in fact be fiarther away," Fanning wrote. "If the companies [sic]

value has risen out of the range of most top tier VCs then we have the

problem Bill outlined. John."

Even while waging his rearguard action at Napster, Bales was talking
to Fanning about new ventures, including some that would be potential
competitors to Napster. In ordinary times and at ordinary companies,
such discussions could be considered a conflict of interest for Fanning.
The idea that Bales spent most of his post-Napster time on was some-
thing he called AppleSoup. It was another hybrid peer-to-peer system,
meaning that it would keep central control of content that was housed on
users' computers. But instead of swapping music, users would swap short
films or animation. And it would come with a rights-management sys-

tem, so that the creators of the content would have to approve each trans-
fer and viewing. Since Napster at times considered expanding from music
into other media, a conflict could have arisen. But that didn't stop Bales,

Fanning, or even Amram. By the time Bales unveiled AppleSoup in the

summer of 2000, his announced investors included both those Napster

directors, entertainment executive Frank Biondi, and the son of MPAA

( 202 ) JOSEPH MENN

head Jack Valenti, who had testified against Napster. After Apple Com-
puter sued over the name AppleSoup, Bales changed it to Flycode. The
suit was easy press, and Bales said then that Apple had done the little-

noticed start-up a favor.

Bales and Fanning also had frequent discussions about Fanning's

attempt to get into distributing Internet videos, which Fanning called

NetMovies. NetMovies was part of what Fanning was describing as an
Internet incubator, NetCapital, which claimed Napster as just one of
many ventures, another being an Internet-games firm evolved from the
old Chess.net. Early in 2000, Fanning hired a Bain 8c Co. entertainment-

business consultant named Martin Kay to help him start NetMovies.

Together they called Kay's old boss at Bain, who had left to take control

of Artisan Entertainment Inc., a movie studio best known for the raging

success of The Blair Witch Project. Mark Curcio was interested in leaving
Artisan, and he was vacationing on Martha's Vineyard in Massachusetts.

Fanning and Kay flew to the island and spent three hours talking about
NetMovies. Fanning said that NetMovies would be similar to Napster,
only with fees for usage and copyright control. Curcio thought he was
being snowed. "It wasn't clear he had any money whatsoever," Curcio told
another entertainment-industry figure. And when he went to inspect the
operation in Los Angeles, "it was two guys in a closet. It was like the

Wizard of Oz." The code wasn't even written yet, and Curcio passed.

The two guys in the closet were Csaba Fikker and Gerald Bagg. Ear-
lier in 2000, Fanning had called Fikker, the old production expert from
Bales's ON24, and asked him to help. Fikker was still kicking himself for
not following Bales to Napster, so he signed on as VP of operations, and
Bagg joined as CEO. Fanning raised money from Napster investors Jim
Gidwitz and Sung-Bu Kim, a contact of Bales's through his girlfriend,

HoUy Shin. Bales also met with some prominent Hollywood figures,

including actor-director Danny DeVito and Jon Avnet, the director of

Fried Green Tomatoes. Fanning and Bales wanted money for NetMovies;
the directors wanted to reach Napster's audience to test scenes or promote

new releases. "John promised DeVito he would be able to deliver a Nap-

ster deal," Bales said. When he couldn't, one director who had invested

demanded and eventually got his money back.

all the rave (203)

 With a skeleton crew working near Los Angeles in Marina Del Rey,
Fanning approved a contract for engineers in San Francisco to write the
program for the movie player. The result "was a piece of crap," Fikker
said, not nearly good enough to release. But Fanning didn't seem to
mind. "He would say one thing today and something completely else

tomorrow," Fikker said. "Gerald was the only one who could commu-
nicate with him." Far worse was Fanning's idea of how to build the
business, Napster-style. He went out and bought a bunch of copyright-
protected DVDs at the store and directed the NetMovies staff to

duplicate the content and put it on the server, without getting permission
from anybody, Fikker said. That certainly would have gotten NetMovies
attention, and very likely a lawsuit. But Fanning evidently felt that the

same negative attention paid to Napster had done wonders. "The plan
was 'Let's have it up on the servers, open the gates, and then we'll figure

it out later,'" Fikker recalled. "It was like a lunatic idea." The only reason
NetMovies didn't go through with the gambit was that the technology
wasn't working well enough, Fikker said.

Bales moved on to Flycode, and a May 2000 article about some of

Napster's competition mentioned it and identified early Napster investor
Adrian Scott as the firm's chairman. Shawn sent a group e-mail around

Napster asking about Flycode's plans. "What's the deal?" he asked. "I

believe Bill Bales is the CEO." Ritter responded to the same group:
"Once a scumbag, always a scumbag."

At Napster, the quest for venture fiinding by then dwarfed all of

Richardson's other projects. Getting Ron Conway on board in December
in the Series B, which raised just over $2 million, had been a good start.

But Napster still had no revenue, and it was spending millions of dollars
on legal expenses, on servers to handle the still-bulging traffic, and on
improvements to the service. And only a venture round would get rid of
the last of Fanning's control.
Richardson's first call was in January 2000 to the established firm of

New Enterprise Associates on Sand Hill Road in Menlo Park. Her con-
tact there, the VC and Fortune magazine columnist Stewart Alsop, had
good reason to listen to Richardson. She had courted him to invest NEA

( 204 ) JOSEPH MENN

money in Interwoven, and he had passed. If he had listened that time,
"I would have made hundreds of millions of dollars," Alsop said.

When she called this time, Alsop had already heard of Napster and

had just invested in another digital-music company. Alsop came to Nap-

ster's office, meeting with Shawn, Parker, CFO Lyn Jensen, and Richard-
son, and they explained the company, including the legal issues and the
unpleasant role being played by Fanning. But they were so vague about
the business plan that Alsop never got around to thinking seriously about

the other problems. He reported back to his partners that it wasn't so

much that Napster had no business plan: As he saw things, it didn't have

a business. A business implies customers, Alsop said. And a customer

derived from the word "custom," as in a tax or a duty— is someone who

pays for something. Even when his partners encouraged him to look
harder, Alsop said, "I couldn't see a business at all." Richardson gave a
presentation to a committee of NEA partners, but the pitch went
nowhere without Alsop's support. Later, Alsop wrote in Fortune: "Here's
the sad truth about Napster. The company's legal argument is untenable,

its business model is terrible, and its software isn't even all that good."

Napster's money kept flowing in the wrong direction. The company

spent $1.6 million in the first three months of 2000, including a half-

million dollars on legal bills and the same amount on research and devel-
opment. Richardson and marketing VP Liz Brooks honed their financing
pitch, putting together a PowerPoint slide show in February. It included a

flow chart of the management structure, short biographies of Richardson,

Brooks, Kessler, and Jensen, and eye-popping statistics on Napster's
growth — still as much as 35 percent in a day. The presentation gamely

tried to make the lawsuit a plus, arguing that it had put the brakes on
more cautious competitors. The business model resembled a smorgas-

bord. Under "revenue assumptions," the sHdes listed advertising sales, CD

sales, subscription revenue for premium content, and even direct e-mail

marketing to consumers.
When the number of users, already passing 5 million, multiplied a

few more times, Richardson and Brooks said, it would be in the industry's

best interest to settle. The record companies spent millions of doUars to

promote new bands, most of which disappeared without a trace. On its

computers, Napster was building the world's premier database of who

all the rave (205)

owned what kind of music and what songs they were seeking next.
Richardson figured that the industry would accept very small payments
for their digital copyrights in exchange for being able to market new
bands to those users who were statistically most apt to go out and buy
those bands' CDs. "It's very expensive to acquire an end user," Richardson

told potential investors. "Napster takes that problem away."

Kleiner Perkins Caufield &c Byers was the pick of the Utter on Sand
Hill Road, having backed Sun Microsystems, Netscape, and Amazon.com.
It heard Richardson's retooled pitch first and assigned partner Doug
Mackenzie to weigh the deal. Mackenzie wasn't impressed by the argu-
ment that the lawsuit was a good thing. "Doug assessed it and concluded
that they were hable," said top Kleiner partner John Doerr. "They were
breaking the law, and it wasn't a prudent risk." Worse, Mackenzie con-

cluded that Kleiner itself —and even BQeiner's Hmited partners—might be

found Hable as well. "It could go back to our Hmited partners, the Stan-
ford endowment," Doerr said. "We didn't want to put Stanford at risk."

But the opportunity was so big that Kleiner couldn't bring itself to

walk away completely. Doerr Hked Richardson, and Kleiner had backed
Amram once before, at Individual Inc. At the end of the pitch meeting,

Doerr gave Richardson a hug. "This is so exciting," he told her. Soon,

Richardson asked for a more concrete show of support if Kleiner wanted

to stay in the running — a bridge loan of $1 miUion. She got the check the
same day. But at the rate Napster was burning through money, that
wouldn't last even until June. Just as Alsop had done for his partners,
Mackenzie agreed to look deeper.

When he did, Mackenzie thought he saw a way out of the jam that
Napster was in, and he suggested that Richardson talk to another smaU
Kleiner-backed firm called Gigabeat, which was working on a system for

recommending songs to customers. Richardson loved that idea — it was

similar to what she had tried to do with Firefly, years before in Boston.

Her heart set on BCleiner, Richardson redoubled her efforts. She met with
Gigabeat's young CEO, Erin Turner, and began to discuss a merger.
Turner was a rising star in the VaUey. She had been working toward a

master's degree in engineering at Stanford when she met two doctoral

candidates and they began talking about digital music. Turner drew up a

( 206 ) JOSEPH MENN

business plan for Gigabeat and won a competition with it, at the same
time winning fiinding for the plan.
For Turner, the prospect of a deal with Napster was thrilling. Napster
had all the users, and Gigabeat had good technology without an audi-

ence. It seemed like a great fit for Gigabeat, and "from Napster's perspec-

tive, they realized they had taken off so fast that the ship was shaking and
barely holding together," Turner said. The two companies began a long

series of meetings between each other's engineers, executives, and share-

holders. Turner even met John Fanning at Palo Alto's Cafe la Dolce Vita,
where the pair had chocolate cake and Fanning explained why Napster
was worth $1 biUion. Afterward, he went to his Jaguar to get Turner a
Napster T-shirt.
Richardson and Turner agreed on the outUne of a deal designed to
protect Kleiner in the event the lawsuit went the wrong way. According
to Turner's e-mails from that time, the investment was to go into an
escrow account, which could have been returned to Kleiner if Napster lost

the looming fight over a preliminary injunction. "Our legal team was not
optimistic," Turner said. "They anticipated Napster potentially paying

damages." Another scenario would have simply subtracted a stream of

those payments from the company's future revenue. Those amounts
might be huge, the lawyers told Turner. In her notes from the meeting,
she wrote: "OPEC vs. Jed Clampett."
The investment deal could have helped Napster, at least, by providing
a legitimate music-discovery service akin to what Richardson had long
been promising. And a new CEO might well have taken a friendlier tack

with the record industry, since Kleiner had concluded that it would be
backing a losing legal position.
Richardson returned from a meeting with Turner late one night with
good news for Amram and a plan. The two companies would combine,
with Napster stockholders getting two-thirds of the resulting firm, and
then BQeiner would invest S15 million. The deal would value the merged
firm at more than $150 million. Napster would get the Kleiner stamp of
approval, and it would get a $100 million valuation —not bad for a six-

month-old firm with fewer than thirty employees. Richardson e-mailed

Amram that she wanted to huddle first with him, then with Mackenzie at

all the rave ( 207 )

Kleiner, before finally combining forces with Amram to try to sell Fan-
ning on it. "I'm planning to 1) strategize with you, 2) Meet with Doug,
3) if we have a deal, call John with you," Richardson wrote.
When Amram responded in the morning, he was enthusiastic. And
he called for a full-court press on Kleiner to extract the most money. He
urged Richardson to get a term sheet from Idealab, a southern California
Internet incubator that had been interested in investing, in order to show
there was competition to get in. And since Redpoint Ventures' Geoff
Yang was interested but wanted to invest alongside Kleiner, Amram sug-
gested that Richardson give Yang the go-ahead to call Kleiner. He didn't

think that Kleiner would want to share the deal, but he figured that it

would spur the firm to act quickly to cut Yang out. "I suspect it will get

those two more competitive when he calls and KP gives him the finger. It

will also put pressure on KP," Amram wrote.

Amram was also interested in tweaking the structure of the deal so
that it could aid Napster in other ways. Among the possibiHties was to

turn it into a sale of assets, rather than a straight merger and investment.
If an asset sale left Napster Inc. behind as an empty shell, the trick might

have complicated the record industry's legal assault: Napster could dis-
tribute the sale proceeds to its shareholders and promptly disappear. And
the gambit likely would have extracted Napster from its grief with Draper
Atlantic, which was still claiming the right to invest at a bargain price in
any new investment round. Technically, an asset sale wouldn't be an
Amram mused. "Would it help w/riaa?
investment round, certainly would
help w/DA," Amram wrote to Richardson.
The meeting at Kleiner went off as planned, and Doerr told Richard-
son the deal would get done. She and Amram girded themselves for the
big talk with Fanning. Since he had sold many of his shares. Fanning no
longer had an absolute majority of the stock. But under the company's
refiled incorporation papers, approval by 67 percent of the Series A Junior
shares was needed to issue a new class of stock, the class that would go to

a venture firm. And Fanning had 41 percent of the Series A Junior shares,
enough to block anything he didn't like. In a tense and sometimes circular

two-hour conference call, Richardson and Amram urged Fanning to sup-

port the Kleiner deal. "This could jump-start Napster," Amram told him.

"This can change the game." Finally, Fanning capitulated.

( 208 ) DOSEPH MENN

 After they all hung up, Richardson held her breath. Just as she feared,

only an hour passed before Fanning told her that he had changed his
mind. He said Gigabeat was getting too much of Kleiner's money.
Richardson thought another reason was that he feared — correctly —that
Kleiner wouldn't want him to stay on the board.
Just like that, the deal died.
Strategically, Napster's last best chance went down with it, according

to Richardson and her confidant, Xtime CEO John Lee. "They wanted

him off the board. That's where the battle was lost," Lee said. "Either

John Fanning gets off and they get real financing and legitimize them-
selves, or he doesn't. . . . He didn't care about the kids. He was a greedy
bastard."

Without Kleiner, Richardson worried that everything she and her

team had worked so hard for would fall apart. At two o'clock one morn-
ing during the flinding crisis, she sent a long e-mail of encouragement

and exhortation to the troops that spoke to those fears. "Fellow Napsters,

our company has come to a critical stage," she began. "What attracted

each and every one of us to Napster is the chance to change the world. A
chance to make things better for consumers, a chance to change the life

of an inner-city kid by letting him make a living as a musical artist. A

worthy goal for sure, but a long, hard road lies ahead." She listed all the

ways Napster could blow it: executing poorly, making bad decisions, fail-

ing to get the New Artist Program running, and infighting. She asked the
staff to work harder, stay focused, and be nicer to each other. "Someday
we will be basking in the glory of having created the fastest growing,

most successful company in the Valley. And you, the first 25 employees of
this company, will be the ones who created the foundation for success."

She signed the memo: "Your Sometimes Fearless, Sometimes Freaked-

Out Leader, Eileen."
Having no alternative besides resigning and leaving Shawn and the
others flat, Richardson trudged on. Her next stop on Sand Hill was
Mohr, Davidow Ventures. Another well-established firm, Mohr, Davidow
had backed Rambus, Sierra Semiconductor, and Vitesse Semiconductors
Corp., all thriving chip firms. And it wasn't afraid to make selective soft-

ware and Internet bets, though it had wisely avoided dot-com retailers. It

had supported Viant Corp., the big Web consultant, and Critical Path

all the rave ( 209 )

Inc., the e-mail-management company. Mohr, Davidow partner George
Zachary heard Richardson out and was intrigued despite the legal risks.

Then something strange happened: After Richardson's presentation, he

got a call from John Fanning, who asked to come in and make his own
case. Fanning went in and told Zachary that Napster was worth $1 bil-

lion, a staggering claim for a company with no revenue defending against

an epic lawsuit. But Zachary would be lucl^^ to be allowed a piece, Fan-

ning said. What's more, Napster was just part of a broader plan. Fanning
was starting his own incubator, NetCapital. Mohr, Davidow should invest

in that as well, he said.

Since Fanning had the power to veto a Mohr, Davidow investment in

Napster, the double pitch impUed an audacious swapping of favors that

once more called into question Fanning's loyalty to Napster shareholders.

"He was superaggressive," Zachary said. "It was an 'I am CMGI' type of

pitch," referring to the holding company with stakes in more than a

dozen firms. Mohr, Davidow passed on NetCapital, but it did offer to

invest in Napster. A term sheet dated March 23 called for an infusion of

$20 million for a fifth of the company. Like Kleiner Perkins, Mohr, Davi-
dow wanted Fanning dropped as a Napster director. At a Napster board
meeting with Richardson and Amram, Fanning again voted no, saying

this offer too didn't value Napster highly enough.

Other firms also got mixed messages. At Benchmark Capital, which
had launched eBay, the partners were interested enough in Napster to talk

price before the negotiations ended without a deal. Along the way, the
partners were informed that Fanning would part with the technology for

swapping music, but wanted to keep the rights for swapping video and
other content. "It was insane," a Benchmark partner said. "But that's

greed for you." Fanning also kept the rights to the unused Napster.net
domain name, which he has to this day.

Richardson gathered herself to make still more calls. As she did, the

stock market reached its historic high and began sliding down. Venture-
capital firms, while outwardly calm and even welcoming of a modest
correction, began recalculating. The further the market fell, the less

chance companies had for a lucrative IPO. The less chance for an IPO,
the less money venture capitalists wanted to put in new companies. Nap-

( 210 ) JOSEPH MENN

ster was finally out of money, and now it was running out of funding
options as well.

One of the last VC firms to keep the door open was Hummer Winblad
Venture Partners, which had made an initial offer that spring valuing

Napster at more than $100 million. Fanning had his usual problems with
the deal, principally that there wasn't enough money in it, and the talks

dragged on for months. As they did. Angel Investors chief Ron Conway
was getting nervous. Conway went to the annual Webby Awards in San
Francisco, a campy but star-studded gala where winners from websites
judged the best in a variety of categories are limited to five-word accept-
ance speeches. There Shawn collected an award and the only standing
ovation of the night. Conway cornered Shawn and Parker at the party

afterward. The two teens had been well out of the loop in all the talks

with the venture firms, but they knew something was going wrong. "We
were going to run out of money. It was complete chaos," Parker said. "We
had been forced to the sidelines. Shawn was in his own little world, and I

was dealing with legal stuff." Now, Conway got their attention. Time was
running out, he said, and he needed them back in the mix.
"If Hummer Winblad doesn't invest, the company is going out of
business whenever the next payroll is," Conway told them. "We have to
solve this, and we have to solve this quickly. If this flinding doesn't hap-

pen, there are no more backups." Shawn tried not to take it too seriously.
"He's just a big kid," Shawn said of Conway. "He was just so dramatic. It

was a serious time, but we were just trying to figure out what he was all

about." What Conway was saying echoed the exasperation Shawn saw in

Richardson's face. "Eileen had planned on coming in and being the

interim CEO. She was getting frustrated with the process of interacting

with the labels, of trying to establish a business model," Shawn said. "She
was constantly looking for someone to take her place and help build the
company."
Conway met with Richardson as well, and he lobbied Hummer Win-
blad partner Ann Winblad, warning her that she was going to miss out
on the biggest Internet company of all time. Winblad listened. In April,

all the rave ( 211 )

her chief partner, John Hummer, and another VC at the San Francisco
firm drove to see Richardson at Napster's office. She walked them
through the PowerPoint slides and introduced them to Liz Brooks and
Lyn Jensen. It took about forty minutes. Later, another Hummer partner,
a former intellectual-property lawyer at Wilson Sonsini named Hank
Barry, came over, and he spent about fifteen minutes with Richardson
and Kessler. And a third time, Hummer associate Alicia Morga came to

look at documents. There were some phone calls, mainly between Barry
and Richardson, and then a draft term sheet appeared like an answered
prayer on April 22. Hummer would put in $13 million, along with

another million from Conway's fund and $500,000 from elsewhere. After
a month of dithering, Napster was worth not $100 million or more but
$65 million. "Hummer had us over a barrel," Richardson said.

A confidential term- sheet draft called for Hummer Winblad to have

two directors' seats and approval of the CEO, who would also serve as a

director. Hummer Winblad wound up with two out of three seats, with
Fanning keeping the third. The venture firm had one more provision,
though. In the event of a merger or acquisition offer, Fanning wouldn't
get to play roadblock again. He and the other big holders would have to

promise to vote their shares the way the board wanted.

Letting Fanning keep his board seat was a huge concession, and
Richardson prayed that it would be enough to get his support. But both
she and Hummer Winblad were worried it wouldn't be. So the venture
firm pored over Napster's shareholder agreements, bylaws, and incorpora-
tion papers, looking for a fallback plan. Fanning's 41 percent of the junior

shares still meant he could veto a new series of shares issued to a venture
firm. But if Fanning were suddenly not on the board. Hummer Winblad
concluded, the remaining directors might be able to do a deal unani-
mously without calling a vote. "If John Fanning is removed and Hank
appointed then can do a unanimous written consent," the plotters wrote
in a two-page memo with the improbably bland title "Mechanics."
In a scheme worthy of a Shakespeare play, they saw a way they might
be able, just barely, to get Fanning removed. Since one director was elect-

able by the combined number of Series A Junior shares, some 11,750,000,

and the 536,860 common shares, a majority of the two classes together
could replace Fanning in that board seat with Hank Barry. "Then new

( 212 ) JOSEPH MENN

board members Yosi, Eileen and Hank can vote to expand the board and
elect John Hummer," the memo said. Fanning had 4.6 million shares. So
the Hummer Winblad team and Richardson counted and recounted the
votes. The Gidwitz clan had 895,000 Junior shares and were likely loyal

to Fanning. But if Conway's fund called in a $250,000 loan to Fanning,

for which he had pledged 312,000 shares as collateral, the odds improved.
Richardson and Barry figured they could get Shawn's 2.7 million shares,

Ali Aydar's 80,000, and the votes of Kessler, Parker, Ritter, and a handfiil
of others. They calculated they could get to 6.39 million votes, 247,596
more than they needed. But there was a catch: They couldn't get there

without Bill Bales and his 1 million shares. And Richardson had termi-
nated Bales, who had then started business dealings with Fanning.
Richardson thought she could still swing Bales, who was oblivious to

his role as potential kingmaker. But it was a conversation she didn't want
to have.And it wasn't clear the scheme would hold up in court. Instead,
she and Amram talked to Fanning over and over in the next few weeks to
persuade him to support the Hummer Winblad investment. His vetoes
had cost Napster offers from the other firms as the market was at its peak.

Now that things were sliding, even Fanning began to see that Hummer
might be the last chance for him to cash out. He agreed orally to the deal.
As the lawyers for both sides worked on the final contract, Richard-
son still worried that Fanning was out looking for something better. And
on the May day that the Hummer agreement was set to close, she

believed, he was in Los Angeles negotiating with potential investors,

though she never found out for sure. Richardson didn't know how to

reach Fanning, and she was afraid he would reverse himself again, just as

he had with Kleiner Perkins. She grabbed Shawn and Parker and shoved
them toward the conference room. "Find your uncle!" she ordered them.

Panicked but used to being panicked, Shawn and Parker agreed on a

strategy. They would have to flatter Fanning, telling him he would prove
himself a visionary by agreeing to the Hummer deal. They needed him to

feel essential, and they would stress that unlike the other deals. Fanning

could stay on the board. "We had to convince him that he was a seasoned

entrepreneur and a respected, benevolent leader. At the same time, we

somehow had to get his subconscious to understand he would be missing
out on the money if he didn't do it," Parker said. Shawn got his uncle on

all the rave ( 213 )

the line, the blood pounding in his ears. "We just tried to convince him,"

Shawn said. At last. Fanning succumbed. The deal closed, giving Hum-
mer Winblad about 20 percent of Napster to Fanning's 15 percent and
Shawn's 9 percent.
With Fanning's simple scrawled signature, a feeling of immense reUef
flooded through Shawn. At last, he was free. His uncle was all but gone
from his life. He could go back to coding. His company had an official

valuation of $65 million. And a respected intellectual-property lawyer

believed so strongly that Napster would win in court that he was staking
his career on the prospect. "I was excited when Hank came and got
involved and understood the legal side, which needed some attention,"

Shawn said in his usual understatement. An IPO and immense riches

seemed more likely than not.

Happier than he had been in many months, Shawn didn't have to

wait long to celebrate his new status as a legitimate player in Sihcon Val-
ley. That very night, Ron Conway was holding one of his regular over-
the-top charity-and-networking bashes at his home in Atherton, where
the median house sells for north of $3 million. Shawn and Parker were on
the three-hundred-person guest list, right there with billionaire investor

Warren Buffett, Netscape founder Marc Andreessen, and Sun cofounder

Bill Joy. With Hummer Winblad 's vote of confidence, Shawn almost felt

as if he belonged with the others drinking champagne and munching on

scallops wrapped in pancetta. Almost, but not quite. "It was like a circus. I

was very awkward going there. I had no idea what I was supposed to

wear," Shawn said. The charity auction was emceed by comedian Dana
Carvey and benefited a host of good causes, including the Boys Sc Girls
Clubs and the Red Herring Community Fund. The San Francisco 49ers
cheerleaders raised spirits around the backyard swimming pool. Among
the items for sale were Arnold Schwarzenegger's Humvee, a tennis lesson

from Pete Sampras, and a dinner with Andreessen. The highest bid of the
night, $650,000 from a Network Appliance Inc. executive, went for a sin-

gle round of golf with Tiger Woods. Napster's Chris Phenner introduced
Shawn to Andreessen, who asked how many users Napster had and

( 214 ) JOSEPH MENN

offered words of encouragement. "Controversy can be a good thing," he
said, "as long as you know how to navigate it."

"I was trying to figure out if these types of things were normal for
this area, or if Conway was just a madman," Shawn said. "It was all for a

good cause, so it was cool, but it was a scene. Definitely a scene." For a

time, Shawn and Parker just stood and watched the street as arrivals
emerged from one amazing car after another. "I thought maybe this hap-
pened weekly," Parker said. "We thought we had been inducted into this

inner circle, where everyone you bumped into was worth $50 million."

Richardson's toughest assignment had come to an end. Originally

having signed on for six months, she had needed nine. She wanted noth-
ing more to do with the firm, and Hummer Winblad was ready to put

in Hank Barry as her temporary replacement. She resigned with a clear

conscience. "There was nothing more I could do," Richardson said. "The
suit needed attention, and in some ways, who better than Hank Barry

for that?"

It would be hard to exaggerate the contrast in personality between

Richardson and Barry. Richardson was a den mother and a cheerleader,
sometimes energetic to the point of ineffectiveness. Barry was a corporate
lawyer only recently turned venture capitalist, with no real way of bond-
ing with the kids doing most of the actual work at Napster. Yet Barry

harbored a rebellious streak that was unusual for one in his position.
Once again, it was aU about the liberating feeUng of music. Not too many
big-firm lawyers or VCs had spent seven years playing rock 'n' roll. Those
times were well behind Barry, now a breadwinning family guy driving a
minivan. But Napster was giving him a chance to recapture that side of

himself Mr. Barry, Silicon Valley lawyer turned private investor, would be
transformed magically back into Hank the Cool Drummer, He Who
Brings Music to the People.
One of five children in an Ann Arbor, Michigan, family, Barry played
in bands in high school and during his first two years at the University of
Michigan. It was a lot more fun than studying, and Barry dreamed of
drumming for real. Deciding to take the chance while he could, Barry
quit school, supporting himself with a radio day job while he played in

bands five sets a night, six nights a week. He cut records with some of the

all the rave (215)

groups, most of them bad, and toured constantly, hitting after-hours

spots to unwind and then flopping in hotel rooms. Seven years passed,

and Barry still wasn't a rock star. One day he awoke and smelled his

clothes from across his hotel room. It wasn't the kind of life he wanted to

be living when he was thirty-five. Barry decided it was time to change

course dramatically. He returned to college with a much greater focus

than most of his young classmates, then entered Stanford Law School at

twenty- nine.
Barry gravitated to entertainment law, keeping his hand in what had
been his great diversion. But when he headed to New York for his first

job at a big firm, it took only a few weeks before he realized that most
entertainment law consisted of haggling over details in contracts that all

looked the same. He returned west for a shot at some technology work in

the mid-1980s, when Silicon Valley had perhaps five hundred practicing
lawyers. Barry worked on mergers, technology contracts, and copyright

deals, where his clients included record giant A&M—the record label

that by virtue of the alphabet would serve as the lead plaintiff in the land-

mark lawsuit against Napster. Barry was unusual at his last firm, the top-

drawer Wilson Sonsini, because he did both intellectual-property and

transactions work, where the stimulation was greater. "He liked being

closer to the actual business decision makers," a colleague at the firm said.

"There was more action, and he was a very good dealmaker. He liked

being in the limelight." Barry worked fiariously as the venture boom

expanded, and it began taking a toll. By 1999, there were three thousand
lawyers in the Valley, all working flat out. In return, they were getting
decent salaries — ^but not the pots of gold that were popping up aU around
them. Barry was drafting IPO deals for people who were about to make
tens of millions of dollars, when all he stood to gain was tens of thou-
sands in legal fees.
Two venture capitalists Barry knew asked him to join them at Hum-
mer Winblad, and Barry accepted. On September 9, 1999, by coincidence
a week after Napster moved to San Mateo, Barry joined Hummer as its

fourth fiiU partner. He had led just one other investment for the firm in
the seven months before Napster made its pitch; he was stiU learning how
to do what he did. What Barry saw in Napster was what everybody else

saw — a terrific application with an incredible rate of adoption, something

( 216 ) JOSEPH MENN

that had potential if you could make it work for everybody, including the

record industry. Barry wanted to try right away to sell a deal to the labels.

But he didn't plan on being too generous, because he was in the minority

that truly believed Napster would win in court. When it did, he reasoned,
it could drive a much harder bargain. If it lost the case before a deal was
reached — ^well, that would be that. The assumption was that if Napster

lost the case, there wouldn't be any business.

Hummer Winblad naturally deferred on the legal question to Barry,

its in-house expert. For Barry, the investment was a serious break from
his past representing copyright holders. And it was a slap in the face to

one technology client in particular, Silicon Valley firm Liquid Audio,

which made software for streaming authorized music to listeners. At
Wilson Sonsini, Barry had helped Liquid Audio go public. And the ven-
ture firm that had backed it was none other than Hummer Winblad.
Before Barry made the final decision on Napster, he called Liquid Audio

chief Gerry Kearby as a courtesy. What happened in that call is a matter

of dispute. "I said, 'I think it's a really bad idea,'" Kearby recalled. "It

screwed the musicians. He didn't care. He was fiilly erect." Asked if

Kearby had indeed advised him against Napster, Barry first said he didn't
recall that. Then, in ascending order, he said Kearby 's version was coun-
terfactual, made up, and a lie.

Whatever the reasons, Barry decided to take a huge gamble on

Napster as the investment's leader, a company director, and the next
interim CEO, a job that he told his wife would last six weeks. Most of his
previous colleagues, while impressed with his legal acumen and work
habits, didn't see him as well-suited for a job as the visionary leader of a
chaotic revolution. But Barry didn't mind making a splash. "He thought
the current laws shouldn't apply to new technologies, and that maybe an
adjustment should be made," a former colleague said. "When he believes
in something, he would go all out. A lot of things Hank does, he does in

a big way."

The rest of Hummer Winblad had another motivation for approving

Barry's decision on Napster. Whether one viewed the risks as insur-

mountable or merely enormous, it was clear that z/'Napster won in court,

all the rave (217)

the payout could be massive. And Hummer Winblad wanted a home run
very, very badly. While the firm had garnered a reasonable share of

respect and press since its founding in 1989, Hummer Winblad was well
on its way to becoming the venture-capital joke of Silicon Valley.

The first partner on the nameplate, six-foot- nine John Hummer, had
gone from Princeton University to the NBA, playing six years before
retiring and collecting a Stanford M.B.A. From there he went straight to
venture capital without running a company himself His partner, Ann
Winblad, had a more traditional VC background, building software firm
Open Systems Inc. from nothing and then selling it for $15 million. She
consulted for IBM Corp., Microsoft, and others. But she was best known
in the Valley for having dated the bete noire of the VaUey, BiU Gates, who
was revealed as a Hummer Winblad limited-partner investor in 1999.
At first, the firm focused on software companies, producing decent
results. But Hummer Winblad missed the early Internet revolution while
lesser-known firms racked up hundreds of millions or even biUions of
dollars in profits from start-ups. Hummer's third flmd, raised in 1997
ahead of the big boom, had returned only 42 percent of the $99 million
invested by October 2000, according to Steve Lisson of InsiderVC.com.

(By the end of 2001, the fund showed a 10 percent total gain, making
each doUar invested worth $1.10; similar funds raised by three other firms
in 1997 by 2001 showed 180 percent, 400 percent, and 660 percent
gains.) If John Hummer and Ann Winblad had come to the Internet reli-

gion late, their conversion made them die-hard proselytizers. Their fourth
fiind, worth $315 million, went almost entirely to Internet start-ups. "It's

like the entire portfolio was made up of dot-com, swing-for-the-fences

deals," said one Hummer Winblad limited partner.
Hummer Winblad's debacle would soon be memorialized in one of
the best-read magazine articles in the Valley, a snarky January 2001 piece

in eCompany Now entitled "Bonehead Safari: My Hunt for America's

Dumbest VC." The winner, by a nose, was Ann Winblad. For a venture

fund, IPOs were the ultimate goal — a sudden infusion of liquid money
that could be distributed back to the Hmited partners, who could hold on
or sell if they chose. Acquisition by another company, also a "liquidation
event," was choice number two. There really wasn't much of a third

choice. In the two boom years ending in the fall of 2000, Hummer Win-

( 218 ) JOSEPH MENN

blad could boast of precious few IPOs. Of those, many were or soon

would be below the IPO price. Liquid Audio had gone public at $15 and
was headed down to $4. Pets.com, where Hummer had put in as much as

$7.55 a share, was below $1. The Knot Inc., a wedding e-commerce site,

was falling from a $10-a-share IPO to $3, and expense tracker Extensity
Inc. had caromed from $20 to $823.50 and back to $19 in October. And
those were winners, ones that sold stock to the public. The others

included Gazoontite.com, a me-too allergy-drug seller that forced a $15

million write-off; eHow Inc., an advice site that went bankrupt; Home-
Grocer.com Inc., which was bought by Webvan Group Inc., itself headed

for bankruptcy; and Respond.com, best remembered for the free bottles

of champagne it gave away at its launch party.

The dot-com shakeout aside. Hummer Winblad also demonstrated a
remarkable tolerance for conflicts of interest, a recurring problem at VC
firms that go so far as to mate one of their start-ups with another, a la

Kleiner Perkins, Gigabeat, and Napster. (Kleiner also presided over the
disastrous marriage of two of its biggest offspring, portal Excite Inc. and
cable Internet-access firm @Home Inc.) After the Hummer Winblad
takeover, Napster signed a pact with Liquid Audio when Kearby's firm
was coming up short one quarter. And Napster did little-noticed deals
with two other Hummer Winblad firms as weU, both at Barry's insis-

tence, according to senior Napster employees. Engineers from the first

firm, Boston's LavaStorm Inc., proved useful. At the second, it was a diff-

erent story. Barry used $300,000 of Napster's money as an up-front pay-

ment to struggling Mountain View, California-based start-up Envive

Corp., which evaluated website performance. Core Napster staffers,

including engineering VP Eddie Kessler, weren't involved in picking

Envive and never even learned that the money changed hands. Envive
tried and failed to come up with a way it could assist Napster. "Eventually
it just fell apart," said Envive cofounder Joe Hsy. Hsy said his firm kept

the money anyway: "They never asked for it back." Even Napster's office

furniture was supplied by a Hummer-backed firm.

The Envive deal was like most VC-related conflicts of interest in that
it got swept under the rug. Private firms have few disclosure require-
ments, and entrepreneurs are loath to sue VCs for fear they wiU never
again get venture funding. But John Hummer never backed down from a

all the rave (219)

fight, and that trait exposed the conflict dance at a small investment com-

pany that Hummer Winblad had flinded with $4 million, Zero Gravity
Internet Group. Zero Gravity, whose smaller shareholders included Marc
Andreessen, ON24 CEO Sharat Sharan, and MPS.com's Michael
Robertson, came to life in November 1999 at the hands of one Steve
Harmon, an Internet stock-picker and the author of a popular book on
raising venture rounds. Zero Gravity. Harmon had garnered profiles in
the Wall Street Journal and elsewhere, and a large following of day traders

watched his weekly stints on CNBC. When he started his new firm, he
sought investments by a number of CEOs whose stocks he was publicly

touting, and at least two of them invested in Zero Gravity. Then Harmon
put a Hummer Winblad-backed firm. Net Perceptions Inc., on his list of
top picks, helping send the stock up 100 percent in ten days. By the sum-
mer of 2000, CNBC became concerned enough about Harmon's multiple
hats that it canceled his contract. And Zero Gravity's board suspended
Harmon for poor management, then fired him for falsely telling the SEC
he had a coUege diploma. An embarrassing situation, to be sure. But
instead of backing Zero Gravity's board and trying to put the pieces

together, John Hummer sided with the loyal Harmon. As lawsuits flew.

Hummer converted his firm's stake into voting shares, took control of
Zero Gravity, announced he would bring Harmon back, and installed

Hummer Winblad associate Alicia Morga as a special executive running

the firm. All of Zero Gravity's other employees quit.
Even some Hummer Winblad allies began having problems with the
firm's strategy. Seattle venture capitalist David Johnston was one. He
introduced Ann Winblad to a firm he had helped found and was invest-

ing in, a sports site called Rival Networks Inc. Hummer Winblad
promptly invested as well, and Ann Winblad joined the board. "Their
reach is unbelievable. And it's sticky," she said at the time. But Johnston
grew alarmed at lavish executive spending that brought monthly individ-
ual credit-card bills of more than $100,000. When he complained to the
board, he was invited to leave the meeting. "Their whole mantra was
'Don't worry, we're going public,'" said Johnston, who had to sue for

access to corporate records. Instead, Rival Networks' formidable burn rate

forced it out of business. Well before then, Johnston decided he'd never
invest alongside Hummer Winblad again. "In the bubble, everyone made

( 220 ) JOSEPH MENN

some mistakes. Hell, I did Pets.com with them. But their greed and their
drive for notoriety caused them to make bigger mistakes."

More than his peers, former basketball center John Hummer took
obvious relish in big battles in front of the crowd. "I am the record com-
panies' worst nightmare," he proclaimed in July 2000. "The fireworks are
just beginning. Before they close Napster, they'll have to pry it from my
cold, dead fingers." In his case, the revolutionary fervor penetrated to a
remarkable level, considering that his primary duty was to return profits

to his investors. As he told Fortune, "When I decided I was willing to lose

my whole $13 million investment rather than change Napster, a wonder-

fiil feeling of peace came over me."
Hummer Winblad's Hmited partners can be forgiven if they didn't get
the same rush of well-being. In the fall of 2000, about five months after

the Napster deal, Hummer was forced to write what must have been one
of the most painfiil letters of his life, explaining how badly the latest fiind
had fared through the quarter ended in September. By then, Gazoontite
and Pets.com were gone, and the S25 million in post-IPO losses in the

latter "were the biggest losses we have ever taken," Hummer wrote. "In

fact, they are larger than all of our losses ever, in the aggregate. It is an
understatement to say how bad we feel about this." Other IPO shares
that had not yet been distributed to limited partners included the Knot
and HomeGrocer.com, which had racked up another $29 million in

losses for the firm's third and fourth funds. While most business-to-
consumer Internet stocks were trading at fractions of their earUer values.
Hummer said that was no excuse. The firm's performance was truly
extraordinary — it was a well-positioned venture operation in Silicon

Valley that hadn't been able to cash in on the biggest investment extrava-
ganza of the century.
Hummer concluded his letter by saying that the firm needed to focus

on execution by its surviving companies "as well as manage valuation risk

in the follow-on financings." Even better, it would seek bailouts through

acquisition. The effect on Napster was subtle but unmistakable. Instead of

injecting new money as needed, fighting the record industry to the end,
and aiming to cash out in an epic IPO, Hummer Winblad was already
looking for help.

all the rave ( 221 )

 humme r winblad

A WEEK BEFORE THE HUMMER WINBLAD INVESTMENT CLOSED,

the May 15, 2000, issue oi Business Week featured Shawn Fanning on the

cover, along with the other four "most influential people in electronic
business." Napster executives were ecstatic. "It is so amazing and so cool,"
CFO Lyn Jensen wrote to her colleagues. John Fanning had a different
take: "I hope Shawn is going to introduce me to his 4 new friends," he
e-mailed the group. He also noted with amusement that his nephew was
the only one not smiling. "The Happy (Yahoo) Happy
faces are great!

(eBay) Happy (Softbank) Very Happy (Amazon) and Don't #$%$ with
me (Shawn Fanning)." By then, 73 percent of college students were using
Napster at least monthly, according to Webnoize. On Monday, May 22,
Jensen invited all employees to come eat and drink champagne at noon to
toast the Hummer Winblad deal at Spiedo Ristorante in San Mateo, a
short walk away. The stafl" felt incredible relief Hummer's cash infusion

( 223 )
and management takeover came just in time. The stock market, tumbling
since March, appeared headed for a long vacation from its nosebleed

highs, hurting IPO prospects and slowly endangering all the less fortu-

nate companies without deep pockets.

Getting a seasoned lawyer as interim chief executive also struck many
as an excellent idea: Napster had just lost the first battle in the record

industry's lawsuit. The company had argued strenuously that it was pro-
tected under the Digital Millennium Copyright Act and that the suit

should therefore be thrown out before a trial in a summary judgment.

The movie, recording, and publishing industries had lobbied intensely for
the DMCA, afraid that they couldn't keep pace with hackers who broke
through whatever encryption schemes the industries put in place. Con-
gress obliged and passed the law in 1998, making it a criminal offense to

help others get around encryption. In a limited concession to free-speech

advocates, librarians, and others, the DMCA created "safe harbors" for

some types of companies. Napster argued that it qualified for at least one,

and possibly two, of those exemptions. The first was for passive "service

providers" that serve as conduits for others who transmit information.

The second exemption covered services that merely index or otherwise
point the way to a variety of information.
The Napster case was the first to test the meaning of those exemp-

tions. Putting off a final decision on the second safe harbor, U.S. district
judge Marilyn Hall Patel spent most of her time trying to sort out the
poorly worded breadth of the first harbor, which limits copyright liability

for service providers "transmitting, routing or providing connections for

material through a system or network controlled or operated by or for the

service provider." After much hair-splitting, Patel ruled on May 5 that

Napster wasn't covered because it wasn't doing the transmitting: It was
pointing users to one another, who then transmitted MP3s. It was a close

call. But even if Napster had overcome that hurdle, it would have stum-
bled on another of the requirements for all the safe-harbor exemptions:
that the companies have "reasonably implemented" a policy to terminate

repeat copyright infringers.

Technology VP Eddie Kessler claimed that Napster had adopted

such a policy in October 1999, but the company hadn't bothered to tell its

users about it until the following February, two months after it was sued.

( 224 ) JOSEPH MENN

And when Napster did terminate users before Patel's May ruling, it did so
by changing their passwords, not blocking their computer IP addresses.
An expert witness didn't have much trouble erasing the traces of his past
Napster account and creating a new one on the same computer. Napster's
claim that it couldn't easily block infringers' IP addresses didn't carry much
weight, since the company had managed to shut out the IP addresses of
bots like those used by NetPD to search for songs mechanically.

Summary-judgment fights are always an uphill battle. The party try-

ing to end the case on the spot must show that there's no disputing its

essential version of the facts, and that the law is on its side. But that was
little consolation when Patel declined Napster's request for summary
judgment in its favor. More than just rejecting Napster's argument, Patel

had highlighted the ineffective copyright policy. And now the labels

could conduct much deeper discovery of evidence through sworn inter-

views and demands for paper and electronic documents. New Napster
CEO Hank Barry had no idea what the discovery process would turn up,
having done less-than-exhaustive due diligence into the legal mess before
investing. If he had done more, he might have paused in his rush to
embrace the company. Among other things, he would have seen the

e-mail discussions among Napster's chat-room moderators, where the

outwardly poised Shawn had shown himself to be less than innocent.

After one of the volunteers wrote that "we might not want to actually say
that we know" that users were breaking the law, another chimed in that at

least some of the MP3s were legitimate. Shawn then urged the parties to

"try to avoid discussions similar to this . . . you should aU be very aware of

what you say." Sean Parker's words were far worse, Barry would soon
learn.

Napster was up against a team of serious lawyers who were relative

novices in Internet law. In a way, it was fitting that both the record indus-
try and its attack dogs belonged to another era. RusseU Frackman, the

fifty-five-year-old Los Angeles attorney leading the suit against Napster,

had until then never used e-mail, learning only during the course of the

case. Frackman didn't even use a word-processing program, instead dic-

tating his legal papers to a secretary, herself the last holdout from the days
when shorthand was required of the firm's assistants. Like many label

bosses, Frackman retained the essence of a Brooklyn accent, which faded

all the rave ( 225 )

a bit after he graduated from Columbia Law School and moved west,

taking a job in 1970 with the L.A. firm of Mitchell Silberberg 6c Knupp.
Soon after that move, Frackman paired with partner Howard Smith, an
early force in filing record-company lawsuits against unauthorized dupli-
cators. There weren't too many of those, since the duplicating required
massive investment. So Smith led the way upstream, going after retailers

that knowingly sold pirated goods and were easier to collect damages
from. In the years after that part of the firm's practice began, Mitchell
Silberberg developed a close relationship with the record dons, and one of

its partners served as the Recording Industry Association of America's

acting head of litigation during the Napster case. After Smith retired,

Frackman became the industry's go-to man.

While the RIAA developed a reputation as a bully among Napster
aficionados, the group rarely filed suit. When Frackman took the call

from the RIAA to file against Napster, it didn't take long for him to con-

clude that he had a winner. "I looked at it as a copyright case, not a tech-

nology case. I thought it was very good," Frackman said.More than

anything, the facts reminded him of one of his greatest triumphs, when in

1996 he had argued successfiilly before the Ninth U.S. Circuit Court of
Appeals that a flea market could be held responsible for letting vendors
sell pirated recordings. After Napster lost its bid for summary judgment,
Frackman drafted more associates to help him as the timetable acceler-

ated. They would have just a few weeks to plow through scores of boxes

of Napster documents and change the momentum of the case.

A week after she left Napster, at the end of May 2000, Eileen
Richardson went in for the sworn interview known as a deposition. She
had never been through the grueling process before, and the Napster
lawyers told her the cardinal rule: Say as little as possible. But as CEO,
she had already said too much. Frackman put an article in front of her.
"I'll read this to you and actually give you a copy if you want," he said,

then recounted her words: "'Maybe I know about this band just in our

local town, and you know about them too. I can share that with you
directly. It's not about known artists like Madonna.'" Richardson
acknowledged that she had said something to that effect. Frackman then
presented her with a printout of a directory from her laptop computer.
"There are, it seems to me, one, two, three, four, five Madonna MP3

( 226 ) JOSEPH MENN

music files on this page. Do you see those?" Richardson did see those;

there they were. And she admitted it was Ukely that yes, they had been
downloaded fi^om Napster. Other Napster executives' hard drives didn't

help the cause. Liz Brooks had seven Beatles songs, five Led Zeppelin
songs, and seven Bjork songs, among others. Lyn Jensen was evidently a

Shania Twain fan, with five cuts. At least Kessler's practice was close to

the official line on Napster's mission to aid the discovery of new music,

boasting three obscure Irish folk songs in addition to a track from the
Dave Matthews Band.
Frackman also made Richardson eat her words about "collaborative

filtering," by which, she had told reporters, Napster would recommend

music based on what users liked and on what people with similar tastes

liked, just as Amazon.com does for books. No such system had been put
in place during her nine months on the job, though it would have been
with Gigabeat. And Frackman hammered on the New Artist Program,

which had taken so long to finally reach the website, in a fairly unusable

form, just a month earlier. In the program's first phase, bands could fill

out profiles about themselves, giving information about influences that

was supposed to be searchable in later incarnations. In the interim, how-
ever, it was just a list of songs and artists, with no navigational guide.
In fairness, Richardson had been serious about the New Artist Pro-
gram —she just couldn't get much support for it from the board or her fel-

low executives. Adrian Scott, the Napster investor brought in by Bill

Bales, remembered discussing strategy at the office the previous fall with
Shawn, Parker, Bales, and adviser Brett Bullington of Excite. Midway
through the meeting, Richardson walked in, "and she was on a totally
different plane," Scott said. "She was talking about unsigned artists. And
we were like, 'hello?'" The balance of power on the issue didn't go
Richardson's way even after the lawsuit began. VP Liz Brooks, in trying
to defend the stripped-down New Artist Program as more than window-
dressing, gave a typical response in an April e-mail to a critic in the music
business: "There will always be a mass of people who only want to hear
the current pop hits. Our job is not to force a musical education on these
people."

But it wouldn't have done Napster any good for Richardson to say she
had tried and failed, so she held her tongue. After Frackman ran through

all the rave (227)

her lack of a college degree and internal documents that touted such
potential Napster revenue streams as CD sales and advertising, he asked
Richardson whether Hummer Winblad had estimated how much it stood
to earn from Napster. She said she doubted it. How, then, did Hummer

decide that Napster was worth $65 million? "Unfortunately, there is no

science to venture capital," Richardson said. "It's an art, if you can call it

that. It's gut."

Frackman was just getting started: The next day was Shawn's turn. As
they had with Richardson, Napster's lawyers gave him basic lessons in

how to survive the process, even playing him a videotape of a simulated

deposition. Tell the truth, they told him, but volunteer nothing. Other
than that, the only thing out of the ordinary Shawn did to prepare was to
get a decent night's sleep. Frackman walked Shawn through Napster's
early days, paying special attention to who held what title. "You said at

the beginning that one of your titles is 'founder' at Napster. Are there
other people who share the title 'founder'?" Frackman asked. "John Fan-
ning," Shawn said. Anyone else? "Sean Parker does occasionally, but it's

not clear as to whether or not he is a founder," Shawn said. Answering a

follow-up question, Shawn said it wasn't clear because Parker had started

work a few months after the project began. Neither Parker nor his uncle
had contributed to the code that made the Napster system, Shawn con-
firmed. So before the move to CaUfornia, Frackman asked, who had
helped write the software? "Jordan Ritter. I believe that's it," Shawn said.

Shawn's testimony, given out of public view, didn't stop his uncle from
claiming that he played a vital role in the development of Napster's tech-
nology. One of Fanning's lawyers was still repeating that claim well after

Shawn's deposition. And Fanning went to some lengths to get the record

to reflect it. As Napster was preparing to file for a patent on its technol-

ogy, it drafted a description of the work and attributed it to Shawn alone,

with Fanning's name in brackets. Asked why that was in his deposition,
Eddie Kessler told his inquisitors: "His name is in brackets because at
times John has made statements that he was — that he contributed to the

design and technology of Napster, but that claim has been refiited by
Shawn Fanning." Because Napster's lawyers worried that the entire patent

could have been jeopardized if Fanning was excluded and then later

claimed involvement, Napster filed its final appHcation listing Shawn,

( 228 ) JOSEPH MENN

Fanning, and Kessler as the inventors. "We didn't want to have a fight

with John," Kessler said in an interview. "It didn't make sense."

With Shawn, Frackman launched on a long series of questions about

what MPS files he had downloaded personally, from which service, before

and after Napster came into being. Shawn pleaded to having a bad mem-
ory. He said he couldn't recall the song names, the artists, or even the type
of music. One live Led Zeppelin track was all he could remember clearly
from before Napster, he said. As Frackman pressed on, Annette Hurst,
an attorney there to protect Shawn personally, grew nervous and began
objecting that Shawn's personal actions were irrelevant to a case accus-

ing Napster of contributing to users' copyright violations. "What you're

trying to do is build a direct claim of copyright infringement against

this young man," she complained. Frackman scoffed. "You're saying I

can't do that?" he asked. "Whether the man who created Napster himself
has committed copyright infringement is not relevant?" The legal fenc-

ing continued until the two lawyers agreed to take it up with the judge
later on.

In the meantime, Shawn testified that the rap songs on his Napster-
issued laptop were ripped from CDs he owned. Frackman appeared
incredulous that Shawn had neither searched the Napster system for

other tracks by Snoop Doggy Dogg and Ice Cube, nor offered his ripped

MP3s for sharing. "Part of it is the bandwidth," Shawn said. "We don't

share things from the office." Pressed about his knowledge of copyright

law, Shawn said he didn't understand it very well, and he conceded that
might be another reason that he refrained from sharing music himself "I

would say it concerned me some, so I was cautious personally," he said.

He said that he was also concerned about the potential for piracy on
Napster, and that the removal policy was intended to address that. The
climax of the daylong interview should have been the early brainstorming
documents about Napster's strategy and problems. But when Frackman
showed Shawn one of the most damaging papers, asserting that "Napster

brings about the death of the CD," Shawn said he didn't recall seeing it

before. That was a good answer: Patel later wrote that the lack of positive
identification forced her to disregard the document, which she called a

"smoking gun." After the deposition, Shawn felt he had done his part

well. "It's safe to say I was nervous about it, but once I got there it was

all the rave (229)

pretty straightforward," he recalled. And he hadn't found Frackman
intimidating. "Either they went easy on me, or it wasn't too bad," Shawn
said. Music pubUshers' lawyer Carey Ramos, who participated in the de-

position, agreed that Shawn had acquitted himself admirably. Afterward,

Ramos thought: "Here's a nice kid who just stumbled into all this atten-
tion. He got surrounded by people who wanted to make a buck, all these
handlers that wanted to make him into a poster boy."

Parker was encouraged by Shawn's mild experience, but he still had

reason to be nervous. He had written most of the early strategy

documents, while Shawn had been busy coding. And instead of Frack-

man, Parker drew an unknown quantity as his interrogator —Frackman's

partner George Borkowski, a brusque and pointed questioner with a

gleam in his eye. Borkowski had been working until near midnight the
previous evening, combing through the boxes of documents Napster had
just turned over. Then he hit on what looked like one of the best pieces of
evidence he had ever seen in a copyright case. And then he found
another, just as good. They were nothing less than open admissions that
the company was deliberately helping its users pull off the largest piracy

job in history. In one e-mail from Parker to Fanning, Napster's cofounder

had stressed the importance of anonymity this way: "Users will under-
stand that they are improving their experience by providing information
about their tastes without Hnking that information to a name or address
or other sensitive data that might endanger them (especially since they

are exchanging pirated music)."

In the other damning document, Parker used the same poor word
choice in laying out the essence of the Napster gamble: "Many of the

strategies I mentioned above (harping CDs, recommendation engine,

etc.) will put us in a much better bargaining position with the RIAA
when they see that we are not just making pirated music available but also

pushing demand." Borkowski stopped reading. "It is the kind of thing you

don't see every day," he recalled. He down

took the papers and walked the

hall to one of the attorneys for the music publishers who had joined in the

lawsuit. "Boy," he told lawyer Jeff Knowles, "this is going to be a fun de-
position." As he read the documents, Knowles's eyes grew noticeably larger.

( 230 ) JOSEPH MENN

 Napster's lawyers had met with Parker beforehand and gone over
what they thought would be the worst documents to surface, prepping

him on his responses. Later, Parker said that they had missed the two that
were the worst of all. In the same San Francisco law office where Shawn
had breezed through his own deposition, Borkowski sat down and ran

through Parker's abbreviated education and career history. As soon as he

got to Parker's role at Napster, Borkowski sensed him growing evasive.

Asked for his job title, Parker said he had never had one. "Let me ask you

this," Borkowski said. "Do you have a Napster business card?" Parker said

yes. "What does it say on it?" "It says 'founder,'" Parker replied. Asked if

the title were appropriate, Parker hedged. "It's the most fitting title at this

point, for lack of a better one," he said.

More and more, Parker's nerves began showing through his stoic

exterior, "As part of your duties for Napster," Borkowski asked, "have you
been involved in any drafting of any business plans or proposals?" "It's

possible," Parker said. "But do you recall doing any of it?" Napster lawyer
Laurence Pulgram butted in to establish an objection: "Vague." Annette
Hurst chimed in as well: "Overbroad." As if following a cue, Parker

asked: "What's 'it'?"

"Drafting or being involved in the drafting of any business plans or

business proposals," Borkowski said with building irritation.

Hurst: Compound, vague.

Parker: Could you rephrase the question?
Borkowski: What about it are you having trouble with?
Parker: Could you repeat the question?

The court reporter read it back.

Parker: What do you mean by "involved in?"

Borkowski: Participate in any way.

Hurst: I still think it's vague as to business plans or business

proposals.

Parker: I don't recall contributing anything to any business plans.

Like Shawn, Parker had a hard time recalling any specific down-
loads of MP3 files to his own computer. And he said he didn't remem-

all the rave ( 231 )

ber discussing Napster copyright issues with anyone, even though he
had been designated as the copyright agent for the company, the person

to whom complaints should be directed under the Digital Millennium

Copyright Act. During the lunch break, Pulgram assured Parker that he
was doing fine.When they returned, Borkowski placed a printout of the
text from one of Napster's earliest Web pages on the table, then pushed
it forward to Parker meticulously, using two fingers from each hand.
Was it Parker's handwriting, Borkowski asked, that suggested adding
the sentence, "And no more wading through page after page of
unknown artists?" Yes, Parker said, it was. And yes, that suggestion did

make it to the website. That wasn't so bad, Parker thought —the word
"unknown" had been picked deliberately because it could mean
unknown only to that particular user.

But Borkowski had saved the best for last. As he placed the printout

of Parker's e-mail to Fanning on the table and began pushing it across,

the corners of his mouth turned up. The involuntary, evil-looking smile

reminded Parker of Dr. Seuss's Grinch. He reluctantly read his own

words about the strategies for making the RIAA see that Napster was
"not just making pirated music available." Pirated music. What in hell had

he been thinking? How could he explain it away? "Did you write that?"
Borkowski asked, in his clipped and precise tone. Pause. "I believe I did,"

Parker said. The best defense he could muster was that he had been using

"pirated" in the sense the RIAA meant it, that all MP3s were illegitimate.

"I did not write that / felt that Napster would be making pirated music
available," Parker said. By the time Borkowski's colleague Jeff Knowles

got to ask about the user- anonymity document, it seemed like so much
piling on. The damage was done. Founder or not, Parker's name disap-

peared from Napster's website.

Armed with the new evidence and Patel's refusal to grant Napster a
safe harbor, the RIAA moved in for the kiU. On June 12, just a few weeks

after Hummer Winblad's investment, the labels filed for a preliminary

injunction that would shut down or cripple the Napster service. "Napster

has been aware from the moment of its creation that its service offers lit-

( 232 ) 30SEPH MENN

tie but pirated music, and that rampant infringement of the most com-
mercially popular music in the world is the very foundation of its system,"
the lawyers wrote. Once more, the filing tarred Napster with the now-
regretted exuberance of its youthful promotional copy, since replaced:
"You'll never come up empty handed when searching for your favorite

music . . . and you can forget about wading through page after page of
unknown artists!" Even Napster's more recent "sanitizing of its Website"
and its addition of boilerplate warnings about copyright misuse, the
record industry said, were accompanied by winks and nudges about the
anonymity of the service.

A preliminary injunction is nearly as hard to come by as a summary

judgment. In order to win one before a trial, a party to a suit must show
that it is likely to win at trial and that either it will suffer irreparable harm
in the interim, or that it will suffer more without an injunction than the
other side would with one. So the well-fiinded record-industry team now
trotted out a raft of studies showing that it was already suffering serious
losses. Compact-disc sales, while increasing nationwide, were falling
among college students, one reported. And near campuses with higher-
than-average Napster use, sales were declining even faster. The most
damaging study was that by Ingram Olkin, a Stanford statistics professor.

The industry hired Olkin to find out what proportion of Napster users
was offering music illegally, Olkin picked 1,150 Napster subscribers who
were offering files and downloaded all of their available MP3s. Any
percentage above 50 would have presented a big problem for Napster,
showing that the majority of its users were violating the law. Any figure

above 90 would make it hard for the company to talk about any substan-
tial noninfringing use. Olkin's study found 100 percent were offering
pirated music —every single one of the 1,150 users in the survey. And
while some probably had at least a few files that were authorized, a mini-
mum of 87 percent of the songs weren't kosher.
If the facts were bad for Napster, the law wasn't much better. Judge
Patel had already ruled that the biggest safe harbor in the DMCA didn't
protect Napster, in part because its policy for banning users wasn't tough
enough. The labels now made a strike against the smaller exemption, the

one for indexing and search services that steered users to inappropriate

all the rave (233)

material. That exemption, Napster said, meant only that it had to take
down links to offending material after it was notified about the mate-
rial —something Napster also said that it was impractical to do, since the

links popped up and then disappeared again as users logged on and off.

Unfortunately for that defense, the exemption didn't apply to companies

that were "aware of facts or circumstances from which infringing activity

is apparent." As the industry lawyers put it, "The DMCA's safe harbors

protect innocent infringers, not those hke Napster, that deliberately build

a business based almost exclusively on piracy."

As SOON AS THE INDUSTRY filed its attack, it was obvious that the labels

stood an excellent chance of winning. Ritter started reworking his resume

and wrote to his mother: "The end of Napster may be upon us." Hank
Barry knew that if he couldn't stop the injunction, almost everything else

he wanted to try would be useless. Discouraged by the previous legal

team's losses, Barry called the biggest gun he could think of, ace litigator

David Boies.
Raised in rural lUinois, Boies had kept his midwestern twang through
his years at Cravath, Swaine &. Moore, representing the likes of IBM and
CBS Inc., and seldom losing. After starting his own New York firm,

Boies cemented his reputation for brilliance by deconstructing Microsoft

and Bill Gates on behalf of the U.S. Justice Department. When Napster
called, Boies was out of town. He had never heard of the company and
wasn't inclined to take on new clients anyway. But his twin thirty-two-
year-old sons took the phone call and lobbied their father hard to take the

case. Boies was interested mainly because the case was on the cutting
edge of the law. "The first thing that struck me was that this was an
important case not only for the music industry but for the whole of the
Internet," he said. "Here you have a new technology, in terms of peer-to-

peer sharing of information, and if that technology is going to work, you

must allow people to have central indexes." With an injunction hearing

already scheduled for the following month, Boies threw staffers onto the

case and soon discarded most of Napster's old and failing arguments.
While still maintaining that Napster should be protected by the

( 234 ) JOSEPH MENN

DMCA, Boies spent most of the time and pages allotted to him on two
new tacks. The first and boldest argument was that Napster's users
weren't doing anything wrong. Boies cited the Audio Home Recording
Act, which established that noncommercial copying by consumers — in

those days, making tapes from purchased record albums or other tapes
was legal. If Napster users weren't breaking the law, then Napster wasn't
either. The second major argument harked back to another new technol-

ogy that at the time had been attacked as ruinous by the entertainment

industry —the VCR. Motion Picture Association of America president

Jack Valenti said at the time that "the VCR is to the American film pro-

ducer and the American public as the Boston Strangler is to the woman
alone." In a 1984 decision, by a vote of five to four, the U.S. Supreme

Court had held that VCRs were legal because even though some con-
sumers might use them to copy and sell videotapes of movies and televi-

sion shows, the machines were "capable of substantial noninfringing uses."

Many viewers, the court held, would use VCRs just for "time-shifting,"

taping shows to watch at another time. Later, the VCR provided an entire
new revenue stream for Hollywood as tape rentals soared.
Napster's dire straits also helped Boies and Barry recruit major Web
intellectuals to the cause. Along with his opposition to the preliminary
injunction, Boies filed statements by John Perry Barlow, Lawrence Lessig,
and a handfiil of musicians, most of whom suggested that the record
industry was more interested in maintaining absolute control of the

means of distribution than it was in protecting the rights of artists. Bar-

low brought an unusual combination of credentials to the fight. He had

been a lyricist for the Gratefiil Dead for more than twenty years and was
affiliated with Harvard Law School. He was also the first to apply

science-fiction writer WiUiam Gibson's term "cyberspace" to what was

actually happening on the Internet. And in 1990, he had cofounded the

Electronic Frontier Foundation, which was to the Net what the American
Civil Liberties Union was to free speech in the physical world. The EFF
had wrestled long and hard over whether it should give Napster signifi-

cant legal help. In the end it opted not to, both because Napster already
could afford some of the best legal minds available and because the facts
were so weak that the suit might end up producing case law that hurt the

all the rave ( 235 )

larger cause of cyberfreedom. "We agonized over it, but they were
doomed," an EFF staffer said.

Privately, Barlow blamed Napster for much of its predicament. "They

blew it by not being Napster.org," he said, referring to the domain-name

suffix generally reserved for nonprofit organizations. "There was no possi-

ble business model." But because Barlow worried that the case would set

a horrible precedent, he filed a supportive affidavit with the court. So did

Lessig, a Stanford law professor known for assisting a Washington court
in the Microsoft case and for writing the book Code and Other Laws of
Cyberspace, which explained how Internet protocols were a series of

choices that would shape society. The book argued that the engineers

who were making collective decisions about the Internet had better
choose vidsely if they were to avoid provoking the government into
imposing harsh restrictions on cyberspace. Lessig felt that even when
technologists went astray, as they might have with Napster, courts should
not be in the business of extinguishing revolutionary developments.
In a long essay that was more legal advice to Judge Patel than expert
testimony, and was therefore deemed inadmissible, Lessig said that the

early architecture of the Internet was both a serious threat to copyright

protection and an unprecedented boon to free speech. And he said that

people on both sides of the argument had overlooked work in progress

that could give copyright holders more protection than they had ever
enjoyed. New technologies were making it possible to track and control
what recipients did with digital works. In the interim, before those new
technologies took hold, Lessig said, courts should proceed with extreme
caution before killing new systems hke Napster.
Even if massive copyright violations had occurred, Napster dramati-
cally improved on previous search engines, which couldn't keep up as

more Web pages changed dynamically. "It would be a mistake," Lessig

wrote, "to ban a technology based on its initial use, even if significant vio-

lations of copyright were enabled. If that had been the test, then many of
the early Internet technologies would have been banned. Likewise would
the VCR have been banned, and possibly even the Xerox machine."
Instead of trying to crop a new technology to fit a preexisting business

model Hke that of the record industry, Lessig wrote, "it has been the prac-

( 236 ) JOSEPH MENN

tice of the Supreme Court to leave to Congress the task of redrawing an
appropriate balance."

As THE PRELIMINARY INJUNCTION hearing loomed, Napster CEO Hank

Barry went on a public-relations and political offensive. He echoed
Boies's radical contention that swapping MPS files was legal, and he
testified in Congress on July 11, 2000. Appearing before the Senate Judi-
ciary Committee, Barry reported that Napster had amassed nearly 20
million registered users in a single year of operation, a milestone that took

America Online ten times as long to reach. He stressed that the users

were acting out of the love of music, and that the biggest draw for them
was the chance to sample music before buying it. Barry was surprised at

how appreciative his audience was. But senators know how to count

votes. Napster's determination to grow no matter what —designed to keep

its advantage over competitors, to prepare for potential ad revenue, and to
entice the record industry —now had borne unexpected fruit. Napster's

users now could amount to a major political force, one that could lobby
elected officials, vote them in or out of office, and participate in mass civil

disobedience if they thought the law was wrong, "We should not brand as
thieves the 20 million Americans that enjoy the Napster services," Barry
declared, striking an unaccustomed pose as a corporate lawyer and fledg-
ling venture capitalist turned populist crusader.

Napster had been generating as many as ten thousand e-mails a day

to Congress, and the record industry was on the defensive. But the
RIAA's Hilary Rosen was still optimistic. Among other reasons, in terms
of star quality, Hank Barry was no Shawn Fanning. "The more vocal they
became, the clearer it was that these guys were talking out of both sides of
their mouth," Rosen said. "They started talking about promoting artists,

but they didn't want the artists to get paid. Then they said they did want
the artists to get paid, but they didn't have the mechanism. Clearly it was
about money, not consumer rights."
Rosen's inside information also suggested that the Napster camp
wasn't as confident as it used to be. She heard from an executive at AOL
Time Warner, Jonathan Sacks, that Hummer Winblad was soliciting a

all the rave ( 237

takeover bid. AOL's concern was how to avoid becoming liable for a judg-
ment itself. Rosen told Sacks that she would be willing to give AOL a

break only if it bought Napster and immediately shut the service down.
But even in that case, Rosen wouldn't give up the right to go after the

previous Napster management, including Hummer Winblad. Without

the guarantee of immunity for itself. Hummer Winblad lost interest in
the sale, Rosen said. AOL's Sacks said his company coveted Napster's

massive user base but would have passed on a deal even if it had stayed on
the table. "We never supported the idea that copyrights should be
infringed or that music should be free," Sacks said. "We always knew the

transition from stolen music to purchased music would be challenging.

We quickly decided Napster had no future."

Inside Napster, where the AOL talks and other sale attempts were

well-kept secrets, the big news not coming from Patel's courtroom was
Barry's hiring of Napster's first chief operating officer, Milton Olin. Yet
another lawyer, Olin had been senior vice president of business and legal
affairs at A&M Records, one of the plaintiffs in the Napster case. Olin
left the record business after his company was acquired by Universal,

joining an Internet start-up that offered previews of music and movies.

Some at Napster speculated that his chief credential, beside his onetime
membership on the RIAA's legal committee, was his old friendship with
Barry. Buttressing Napster's argument that it would be impossible to sort

out which users were offering infringing content and which weren't, Olin
testified in a deposition that even inside the record business, it was often
unclear who owned what. But Olin didn't make an impressive witness.
Asked if he had ever in his career tried to determine who owned a copy-

right to a work, he said that he had not. Asked if at A&M it had ever
been necessary to find out who had the rights to a music composition, he

said he didn't know.

Movie-industry spokesman Jack Valenti may have had a dramatic
impact on Napster's evolution without realizing it. As part of a package of

affidavits submitted with the labels' motion for a preliminary injunction,

Valenti had written in June that a multiple-industry group he chaired

called the Copyright Assembly was deeply worried about where Napster-
like technology was headed next. "If the courts allow Napster and services
like it to continue to facilitate massive copyright infringement, there is a

( 238 ) JOSEPH MENN

grave risk that the public will begin to perceive and believe that they have
a right to obtain copyrighted materials for free," Valenti wrote. "If Nap-
ster can encourage and facilitate the distribution of pirated sound record-

ings, then what's to stop it from doing the same to movies, software,
books, magazines, newspapers, television, photographs, or video games?"
Actually, very Uttle would stop it. Shawn had called for expanding
Napster to other media months before, and now Napster was considering

doing so. As things stood, Napster recognized only MPS files. But the
engineers had tweaked the system in tests to allow swapping of Microsoft
Word text documents and Adobe Acrobat graphic files. If a new version

of Napster was released with that capability, usage could have doubled,
and an entire new front in the battle would have been opened. Ritter, who
ordinarily supported enhancing functions no matter the risk, in this

instance disagreed. It wasn't because he didn't think people should be able

to share whatever they wanted. It was just that he understood the lessons
from aggressive search engines like Scour, which often turned up docu-
ments from computers whose owners didn't realize that the material

could be seen by others. "I think these format types are a big mistake,"
Ritter wrote on June 26, weeks after Valenti's declaration. "Napster is

hyped and misconstrued enough; the above types are excellent fuel to an
already unmanageable fire." Barry killed the plan, probably influenced
more by Valenti than by Ritter. As the former AltaVista executive Don
Dodge explained it to Ritter three days later: "Hank decided yesterday

that we would not release the non-music file types. ... As with most
decisions these days, it was a legal caU."

Other legal calls kept Napster documents out of court and out of the
public eye. Almost all corporate litigation includes minor but time-

consuming and expensive disputes about who is entitled to take deposi-

tions from whom and which documents they get to see. When enough
arguments pile up and can't be resolved through compromise, the judge
gets stuck having to make rulings on such minutiae. A hearing on several
of those flaps was held June 19 in what would be one of Napster attorney
Laurence Pulgram's last turns in the leading role before Boies got up to

speed. Most of the issues were of little consequence. But one of them, a
request for Napster documents, was so clearly legitimate that Patel didn't

understand why Napster was resisting. The documents, like most of those

all the rave (239)

in the case, would be subject to a protective order, barring them from
appearing in the public court file or the press. There were two sets of docu-

ments at issue. One included the contract for Shawn's initial transfer of the

rights to his invention to the company. Shawn had testified at his deposition
that he knew he had signed something of the kind, but "he was generally
unable to articulate precisely what it was," the record-industry lawyer said at
the hearing. The other documents recounted John Fanning's sales of his

stock. Pulgram argued that the two documents weren't relevant. "All this is

is an effort to try to get to Mr. Fanning personally, to get private informa-

tion about to whom he sold stock," Pulgram told Patel. Pulgram didn't

give another logical, though legally insufficient, reason for fighting the

The documents would show just how little Shawn had received,
request:

and how many hundreds of thousands of dollars his uncle had made from
the piracy of others. Patel ordered the documents turned over.
Other documents went the way of the shredder. Napster was moving
to new offices in Redwood City, and on the eve of the move chief finan-
cial officer Lyn Jensen sent a companywide e-mail telling employees to
keep copies of documents that might be required for court. All the others,
she wrote, should be dumped in the "large locked bins that have the

words 'shred works' on the side." Moving offices added to the stress of
the Napster team. Most of them thought their lawyers would defeat the
attempt at a preliminary injunction, but they couldn't be sure. Napster's
users weren't sure, either, and they poured onto the system in numbers
that as much as doubled every few weeks. On July 24, one of Napster's

outside public-relations staffers, Jill Mango, e-mailed a bulletin to her

colleagues. "We have finally reached full pop culture saturation," she

wrote. "I just got a phone call from the fact-checkers at Who Wants to be
a Millionaire. Qj^ Dr. Dre and Metallica recently filed lawsuits alleging
copyright infringement against which Internet MP3 sharing program?

Final answer: Napster."

High noon came two days later, at 2 p.m. on Wednesday, July 26,
2000, in Patel's eighteenth-floor courtroom across the street from San
Francisco's black-and-gold-domed City Hall. Journalists and other spec-
tators had been lining up since 10 a.m., and two hundred were there

( 240 ) JOSEPH MENN

before the hearing began. Napster's top leaders didn't seem too worried

about losing, especially right away. Fanning sent an e-mail saying that
even if Patel ruled against the company eventually, the order would be
stayed during an appeal. He estimated there was only a 10 percent chance
the higher court would also rule against Napster. Barry sent a cheery all-

hands message the day before that began with the word "Greetings!" and
reminded the staff to avoid speaking to the press. "We are having the

hearing tomorrow. Shawn and I will be attending for the company, and
we'll call you guys immediately after and let you know how it came out.

There is a good possibility that nothing will happen," Barry wrote. Statis-
tically, he was making a good guess. Preliminary injunctions, especially
those likely to be appealed by one side or the other, are rarely issued in
open court, before the judge has had time to digest the paperwork and
craft a written ruling solid enough to withstand further challenges.

The forty-seat courtroom was so mobbed with attorneys for the vari-
ous parties that many had to watch on closed-circuit television next door.

Barry and Shawn, who wore a blue blazer and tie, sat behind their lawyers
in the stifling room. Record-industry attorney Frackman, confident that
his brief had shown his side would probably win at trial, focused his oral
argument on the other half of the test for an injunction: the likelihood of
irreparable harm. And now, Napster's soaring popularity was the strongest
ammunition against it. "Since the court walked in several minutes ago,"
Frackman began, "30, 40, maybe 50,000 recordings have been down-
loaded using the Napster system; 14,000 recordings are downloaded a
minute ... if we take the six months that Napster has posited it will take

to get to trial, there will be 3.6 biUion separate recordings downloaded

using the Napster system. And 90 percent of those. Your Honor, are
copyrighted." By then, he said, Napster would have 75 million users, and
no royalties would have gone to anyone. "The longer this goes on. Your
Honor, the more impossible it wiU be for us, and we believe for the court,

to do anything realistic." In addition to hurting CD sales, he said, the

industry's eflbrts to get its own system of online distribution in place

wouldn't stand a chance. Music publishers' attorney Carey Ramos offered

a short rebuttal to Lessig's argument against stifling new technology. "All

we request is that Napster be required to comply with the law, to follow

the same rules of the road that other media businesses have followed for

all the rave (241)

years, by obtaining permission before enabling the copying," he said.

"Napster doesn't want to do that. It doesn't want to have to engage in

clearances. It doesn't want to have to hire people to determine whether

they need to get clearance and to seek permission. It's too much effort. It

requires them to work before they become Internet billionaires."

Appearing for the first time before Patel, Boies pursued the same
points laid out in his brief, starting with the language in the Supreme
Court's VCR ruling that allowed technology to come to market if it could

have substantial noninfringing uses. Boies handed up his charts and case
citations, cleared his throat, and got out three full sentences. The last of
them was: "We have at tab No. 2 of the book that the court has, a refer-

ence to a whole series of substantial noninfringing uses of which Napster

is capable. And as the court is aware
— " Patel cut him off. "What does

that mean, 'is capable'?" she asked. "As opposed to 'is in fact' or 'has in

fact been performing?'" From that moment on, Boies was crippled.

Unlike in the VCR case, there was a wealth of real data about how Nap-
ster was being used right then.
It didn't get any better from there. Boies said that various courts had

held service providers and others not responsible for the actions of their
users. But Patel had been immersed in the early memos and e-mails from

Parker and the others, and they were still staring up at her. "Isn't that the

guts of what Napster was all about?" she asked, interrupting Boies for the

fifth time. "'Pirating be damned,' I think, was pretty much the sense one
gets in reading some of the exhibits from some of these early meetings or
memos, et cetera. I mean, piracy was uppermost in their mind, right? Free
music for the people, right?" Boies had Httle left to say, except that the

facts about present-day Napster and the law were more important than
the previous writings of a clever nineteen-year-old. In everything Boies
brought up, from the Audio Home Recording Act to the prior year's

decision allowing sales of the Rio MP3 player, Patel kept after him. The
toughest jab may have come when Boies said that the VCR case permit-

ted home copying that wasn't commercial. "They weren't sharing it with
the world," Patel interjected.

Boies's sidekick from Pulgram's firm, Daniel Johnson Jr., then tried to

fit Napster into the remaining DMCA exemption, the one for objective
search services. To be denied that exemption, he said, you "have to have

( 242 ) JOSEPH MENN

actual knowledge each time an individual consumer sends infringing
material" —the unguarded remarks of a teenage cofounder notwithstand-

ing. Again, Patel was having none of it, because all the other evidence
suggested that the piracy bazaar Parker envisioned had very much come
to fruition. "I don't think this system is just invested in and supported by
a single nineteen-year-old," she said from the bench. In any case, "if you
have in fact designed a product, a system that is in fact designed to do
just what it's been doing, enabling infringing, enabling piracy, you can
hardly stand back and say, 'Gee, I didn't know all that stuff on there was
pirated.'" Johnson jumped to the VCR decision, which he said allowed

sharing films with friends. "All 79 million of them?" Patel asked. "Seventy
miUion or seven," Johnson ventured. "But doesn't that take it beyond
personal use?" Patel asked. Johnson attempted a hop to the Rio decision
in the Ninth Circuit, which had interpreted the Supreme Court's VCR
ruling broadly to cover some other nonprofit copying, in that case from
CDs to MP3s. Patel hadn't telegraphed her thinking, but she had already
made up her mind that the Rio case dealt with certain types of hardware,

not giant interactive webs of software. Sensing that the last door was
closing on him, Johnson pressed so hard that instead of allowing Patel to

interrupt him, he interrupted her. It was as if the internal gunfighter that

hves inside each litigator had seen he was surrounded and simply decided
to go out with guns blazing.
The Rio case "doesn't apply here, and I will explain why when I ren-
der my decision," Patel said.
But in that decision, Johnson persisted, "once the CD is on a hard

drive, what happens to it?"

"There's no digital recording device, even by

— " Patel began.

"You're not listening. Let me try one more time. Once it's on the hard
drive
—
Patel interrupted him back, ending the exchange. "You're finished,"
she snapped. "You may have a seat," After allowing brief rebuttals, Patel

called for a break that lasted half an hour.

When she returned to the bench, Patel shocked almost everyone in

the courtroom. "Plenty of time has been expended in preparing for the

all the rave (243)

motion, certainly plenty of paper has been expended as well," she said.

"The court is able to render a decision." Speaking off the top of her head,

Patel ruled first that most Napster users were violating copyrights. "This,

in fact, should come as no surprise to Napster, since that . . . was the pur-
pose of it." Tackling next the VCR case's approval of technology capable

of substantial noninfringing use, she said that even the potential for such
use at Napster was minimal. "While it may be capable of some of these

other things, those uses seem to pale by comparison to what Napster is

actually used for, what it was promoted for, and what it continues to be

used for." She conceded that the issue of acceptable personal use was a

trickier one, because the technology had gotten out ahead of the law. But

she said users who distributed files to large numbers of strangers "cannot
be said to engage merely in the typical personal use." And she got rid of

the rest of the VCR case by pointing out the huge flaw in the parallel:

The VCR case involved technological devices that a manufacturer dis-

tributed to consumers and then lost control of Napster continued to be

in charge of how its service was used. Then Patel disposed of the Audio
Home Recording Act in four sentences, declaring that computers were
not "audio home recording devices" as defined by that law.
Satisfying herself that Napster users were breaking the law, Patel

turned to what Napster knew about the behavior and if it abetted their

actions, as required for a finding of vicarious or contributory infringe-

ment. Citing the internal documents about piracy and the need to remain
ignorant of IP addresses for that reason, Patel ruled that the evidence
"overwhelmingly establishes that the defendant had actual or, at the very

least, constructive knowledge." That finding also ended Napster's attempt

to get into any of the DMCA's safe harbors.

For good measure, Patel went beyond what she needed to do to shut
Napster down. She said that Napster had added liability because it had
"supervisory powers" over what was happening on its network, as it

demonstrated by blocking hundreds of thousands of users, including

those cited by MetaUica and Dr. Dre. Going forward, she said, the com-
pany must find a way to make sure that none of the files available violated

copyrights, even if Napster had to redesign from scratch. "I'm sure that

anyone as clever as the people who wrote the software in this case are

clever enough, as there are plenty of those minds in Silicon Valley, to do

( 244 ) JOSEPH MENN

it, and come up with a program that will help identify infringing items,"

Patel said.

The ordinarily composed Boies saw everything falling apart as Patel

spoke. He clutched a red pen tighter and tighter, until the ink squirted

out on his hands. As Patel invited the record industry to submit pro-

posed wording for what would become the formal injunction, Boies tried
to say it would be technologically infeasible to carry out what she was
ordering, and that Napster executives didn't even have a Ust of what
songs were infringing. "That's their problem," Patel said. "They created
the monster.'"

Patel asked Frackman when the industry would like the injunction to

take effect. But Frackman was still recovering from his surprise at having

won almost the entire case in a single day. "It was obviously a huge vic-

tory. It was one of the most public victories we had ever had. I had given
one of the best arguments I had ever given, a long argument in a long day.

And it had been a long eight months since we had filed the suit." Watch-
ing Frackman's next move from the audience were Hilary Rosen and
other RIAA officials, plus lawyers from Universal, Sony, and Bertels-
mann's BMG label. Frackman got to his feet slowly and started walking
to the podium, trying to think of a way to say "immediately" without

appearing ruthless. He stalled during the ten-foot walk by looking at the

clock. Patel saw him do it. Frackman saw her watching and moved to

take advantage. "Right now," he said, as mildly as he could. "And you're

looking at the clock, not the calendar," Patel said, getting a laugh from

the record-company partisans.

Frackman said that if Patel didn't act quickly, there would be "a rush

to the computer and enormous amounts of downloading." Boies com-

plained that Napster couldn't sort out legitimate use from illegitimate use
quickly enough and would have to shut down. Patel's voice dripped
sarcasm: "What about all those substantial noninfringing uses you were
trying to convince me of?" She ruled that the injunction would take effect

two days later at midnight, and she refused Boies's request for a stay of
her order while Napster appealed to the Ninth Circuit. The gavel rapped,

and the reporters sprinted from the court.

As Napster's lawyers huddled in the room, Shawn's eyes filled with

tears. He looked down at his hands and started picking at and pinching

all the rave (245)

his skin."Oh my God," he thought. "What in the world is going on
here?" The RIAA, which had been prepared for any outcome, handed out

copies of a statement to reporters in the hallway. Barry scribbled out a

statement on the spot, and the company's public-relations staff told jour-
nalists that he would read it to them in the lobby. Instead, the Napster

crew evaded the media horde, climbed into a Lincoln Town Car, and

drove off.

A dozen record-industry lawyers went to celebrate at the restaurant

Jardiniere. Recording Industry Association general counsel Cary Sher-

man found a piano and spontaneously sat down to play jazz. An associate

at one of the San Francisco firms happened to sing in nightclubs, and she
lent vocals to the occasion, getting extra appreciation for a Gershwin
—
number "They Can't Take That Away from Me." Afterward, Sherman
told her that given their audience, if she couldn't get a big-label contract

that night, she probably never would.

Inside Napster, Eddie Kessler sent out an unemotional e-mail relay-

ing what Barry probably would have read to reporters: "Hi aU. I just got a

call from hank and milt. We are surprised and disappointed that the
judge has apparently decided to issue some form of injunction, we may
have to shut down aU or parts of the service within 48 hours. Obviously,

we will comply with the court's order and move forward. We haven't seen
her order and we don't yet know what it says. You are invited to tune in to

the webcast at 7 pm." Parker was in Virginia and called the office to find

out what had happened, reaching Barry's assistant, Alicia Morga. "It
doesn't look good, Parker," she told him, recounting the decision. "And
she talked a lot about your documents."
Boies and his team threw together an emergency request for a stay
from the Ninth Circuit pending a fliU appeal. Work at Napster pretty
much ground to a halt as the forty-six employees wondered what would

happen to them — if they would be laid off when the system shut down or

kept around to rework it into something that complied with the injunc-

tion. The severity of the situation was glaring. In a rare e-mail from Nap-
ster recruiter Inga Kulberg to the whole staff, she urged them to hang
tight: know you have been bombarded by recruiters, and
"Hi everyone. I

staffing managers, but don't jump ship yet! We will work it out together."

When it aired, the webcast showed a grim-faced Shawn and Barry.

( 246 ) JOSEPH MENN

"We'll keep fighting for Napster and your right to share music," Shawn
said, urging viewers to e-mail the record companies. He went home and
slept badly, trying to get his head around the ruling. He brainstormed

about how he could change the system. Shawn had given out one of his

e-mail addresses on the webcast and was rewarded with 2,626 messages
in support overnight, ranging from the funereal to the defiant. "Napster

was my bible for awhile, and I hold it sacred. If there's anything I can do
to help, like creating some kind of a petition, please just let me know,
thank you for everything you've done for us, the true fans of music,"
wrote New Yorker Daniel Uhl. Others suggested setting up servers in
unreachable countries. Many said they had bought more CDs than ever
after sampling with Napster, and more than one credited Napster's chat
rooms for their romantic relationships. Within hours, there was indeed a

petition: Napster staffer Nate Mordo spread the word internally about the
document, in which thousands of signatories pledged not to buy CDs
while Napster was down.
The day after, the Napster ruling made front pages across the coun-

try. MTV interviewed Shawn in Napster's kitchen as less-favored TV

crews did stand-ups outside the building. Shawn played it populist cool

for MTV, saying he was upset mostly for Napster's 20 million users. "To
me, they were the ones being attacked, not necessarily me personally, or

even the technology," Shawn said. He said he didn't know how Napster
could comply without shutting down but didn't support a boycott. Shawn
was at his best when he was both modest about Napster's innovations

and mystified about the attacks on it. "It was the first appHcation out
there that demonstrated file-sharing, so I suppose I'm not surprised that
it is directed toward us," he told the interviewer. "But it is surprising

to me to see a technology that is based on fundamental Internet prin-

ciples of exchanging information and search-engine technology and chat
technology be attacked like this . . . it's just sort of a combination of
technologies."

The number of Napster users soared to the highest levels yet, just as

Frackman had predicted. On July 28, as the midnight cutoff neared,

traffic to the website alone topped 849,000 visitors. With 22 million users

and just $400,000 worth of hardware, the Napster system finally maxed
out, and not everyone could connect. That week, "Napster" became the

all the rave (247)

most-searched-for term on the Internet by users of one engine that tracks
such figures, ending a thirty-week run by "Pokemon." In a sign that Nap-
ster's understudies were ready in the wings, "Gnutella" jumped from
beneath the cutoff for Lycos's Top 50 all the way to number seven.

Fortunately for Napster, the three-judge panel of the Ninth Circuit

that was on duty to consider emergency motions included one Alex

Kozinski. A Romanian immigrant who had turned fifty earlier that week,
Kozinski had been appointed by President Reagan fifteen years earUer as
one of the youngest appointees to the appeals court. A forceful intellect

and even more forceflil personality, Kozinski loved taking cutting-edge

cases and was known for his aggressive interpretation of the First
Amendment. He had ruled that abortion foes had the right to pubUcize

the names of doctors who performed the operation, and he had held that

a lawyer was free to criticize a judge. Kozinski was also an early fan of the
Internet, having penned columns for Microsoft's online magazine Slate as

far back as 1996. To many working at the court's offices in San Francisco
when Napster's request for an emergency stay came in, the question was

open-and-shut. Such emergency requests are almost always turned down

with little fuss.

But Kozinski was excited about the prospect of a debate on the issues,

which he argued were so important and so new that they merited a flill

airing. After some effort, Kozinski was able to convince one of the other
two judges on duty, Barry Silverman, to vote with him to grant the stay.

None of the parties in the case ever learned it, but Kozinski also tried to
have the three-judge motions panel retain control of the case through the
briefs and oral arguments, a step that would have kept him involved in

the final ruling. The other judges didn't agree, and arguments were
instead set for October, when Kozinski was unlikely to hear it.

As Napster's management spoke with Boies by conference call late on

Friday afternoon about how to comply with the injunction, word came
that the stay had been granted. Napster could remain onUne. The brief
order said that the case raised "substantial questions of first impression,"

and noted that the appeals court would consider not just the merits but
also the sweep of the injunction. In order to sway Silverman, Kozinski

( 248 ) JOSEPH MENN

had resorted to arguing that even if the ruling was essentially sound, it

was too harsh. Most memorably, he had cited the opinion of his son, a

Napster user who had reported that forcing Napster to weed out copy-
righted material "would be like trying to take the piss out of a pool."
With no idea how close they had come to failing to win the stay

and no clue that their best hope on the bench would be ojff the case by

October, the Napster crew exploded with joy. They would have months
to convince the appeals judges to reverse Patel, make a deal with the

labels, or develop a new system — possibly all three. Napster director John
Hummer strode around the office and crowed. "This is like the playoffs,"

said the former NBA center. "They won the first game, and we won the

second game. It's going to seven, and we're going to win it." Others in
the office jumped up and down and hugged each other at the news. "It

was one of the most incredible experiences of my life," Kessler said. "I was

so overwhelmed afterward that I only then realized how stressed out

I had been."
On Monday, Barry sent another group e-mail, thanking all for their

work "under difficult and changing circumstances." He gave the schedule

for paper filings and arguments before the appeals court, then dropped a
bombshell: "You may well see reports in the newspapers suggesting that

we are trying to get a settlement with the record companies. These reports
are true. We're exploring several business models, and we'll probably be

discussing them more in public as the week goes on . . . the basic options

are an advertising model, a subscription model, or a hybrid of the two.

Our bottom line is to keep the service convenient and easy to use for the

Napster community, there is no clear response from the record companies

to our overtures yet. We'll keep you informed of any developments."

In fact, Barry had been trying to get a deal with the labels from as
early as June, when his venture-firm partner and fellow Napster director
Hummer called Edgar Bronfman. Bronfman was CEO of Seagram Co.
Ltd., owner of the largest record firm. Universal Music. More important,

Bronfman was far from being an old-school music executive, having led
Seagram into the business only recently from its beverage-industry roots.
Bronfman was confident that the music industry would win in court,

all the rave ( 249 )

probably even getting the preliminary injunction, but he was still predis-

posed to listen. "The notion was that Napster was only the first —there
will be others to replace it," he said. "Here was an opportunity to main-
tain a large customer base, potentially, and over time migrate it into a

commercially viable system."

At a California airport on July 5, 2000, Bronfman met with Barry,
Hummer, and others to discuss what Napster's business model might be.

The ideas came fast and furious, but there was no technology available to

make Napster legitimate, and the company was reluctant to charge its

users. Without charging them, Bronfman said, there didn't seem to be

any way that Napster could make a profit even before it paid artists and
the record companies. Yet both sides realized the prospects for a deal were
best before Patel ruled one way or the other — especially if she found that
Napster was breaking the law, which would give any new owners a mas-
sive liability headache. So Bronfman arranged for a summit meeting to be
held with other label executives in the most conducive setting for deal-
making he could imagine —investment banker Herb Allen's upcoming
annual media-moguls-only conference in Sun Valley, Idaho, birthplace of
the Disney- ABC merger and countless others.
Ahead of the meeting. Hummer planned to offer the labels just 10
percent of Napster's revenue. "I urged him to be more creative and more
flexible, because nobody would stand for that," Bronfman said. And Nap-
ster did up the ante dramatically, suggesting that the labels could share 60
percent of Napster's ownership. In the late afternoon on July 13, the two
Napster directors met in Sun Valley with Bronfman, Bertelsmann CEO
Thomas Middelhoff, Sony Corp. co-CEO Nobuyuki Idei, and Sony's
U.S. chief, Howard Stringer. The meeting went well, and Idei and Mid-
delhoff told Barry to keep dealing with Bronfman, who wanted to craft

an industrywide deal. "We were very close," Bronfman said.

A week later. Hummer changed direction. "He said he had another

offer for $2 billion, hinting that it was from AOL, and that unless we
wanted to buy Napster for %2 billion, he would walk away," Bronfman
said. Bronfman told him there was no way the record companies would
pay that kind of money. He also didn't believe the AOL offer was real,

that the company's directors would be willing to risk their pending acqui-
sition of Time Warner on the Internet upstart. And that's what Bronf-

( 250 ) 30SEPH MENN

man told a nervous Jerry Yang, founder of Yahoo!, who also had been
offered the chance to meet or beat AOL's alleged bid. After talking things

over with Bronfman, Yang passed as well.

When the preliminary injunction came down and was stayed and the

AOL interest evaporated, Bronfman expected Barry to return to the bar-

gaining table and offer the labels something better. But on the Monday
after the ruling, Barry e-mailed Bronfman and suggested that the record
companies split 50 percent ownership of Napster, without the right to

vote on the company's strategy. While more palatable than a $2 billion

price tag, the offer was still less attractive than the Sun Valley summit
terms, before a federal judge had concluded that Napster was probably

breaking the law. It didn't make sense. "Things went backward from
there," Bronfman said. Barry, who called Bronfman a visionary, said he
doesn't know what went wrong that summer as he pitched variation after

variation of a settlement, only to be rejected each time.

But Bronfman thinks he knows what happened between Sun Valley

and the watered-down proposals after the injunction: Intel's Andy Grove.
Bronfman had multiple conversations with Grove, who believed that

Napster was the unstoppable way of the future. More important. Grove

had multiple conversations with John Hummer.

"Andy was virulent that Napster was the next great thing, that under

no circumstances would intellectual property be protected on the Inter-

net," Bronfman said. "He was as close to God as anyone who existed in

Silicon Valley, and John was going to listen to Andy harder than to me or

anyone else." Bronfman is convinced that Grove persuaded Hummer not

to give up control of Napster. "The two people who forfeited that oppor-

tunity were John Hummer and Andy Grove," he declared. Hummer

agreed that Grove was a major booster but said it made sense not to let

the record industry win the power to change Napster's direction. "They
always wanted to figure out a way to tax every individual transfer, and it

just wouldn't work," Hummer said. "Either you believe that Napster is

super-radio, or you don't. In the end, these guys just don't believe that
Napster was the best promotional tool they ever found." Hummer's own
sense of high purpose couldn't have helped: His quote "I am the record

industry's worst nightmare" appeared in Fortune around the time that the
negotiations collapsed.

all the rave (251)

 More than a few of Napster's employees and most of its fans would
have been disappointed by any compromise with the The service's labels.

popularity had always contained an element of perversity: The great

attraction for many was that Napster offered an incredibly easy way to

break the law. As Napster neared the end of its rope in court, that perver-

sion intensified. The more endangered the company became, the more
users flocked to the service to get what they could while they still had the
chance. And that added to Napster's strategic dilemma. "Your biggest

problem," Rosen told Barry, "is that instead of a business, you created a

movement. And it's impossible to convert it." Every time Napster could
have shifted models, Rosen said later, "they were hampered in doing so

because of the perceived we can't do this to the community we created.'"

In the end, she said, "I have never seen a brilliant idea handled so badly,
bungled by such greed and so many opportunities lost."

All the traffic, combined with the Robin Hood pose, made Shawn
Fanning an international celebrity And he was beginning to enjoy the
extra money he had gotten when Barry took over — eventually more than
$100,000 in annual salary. He would also sell more than $100,000 in

stock. He bought a BMW convertible and spent thousands of doUars

constructing a makeshift recording studio to go with the gym and pool

table in his plain but spacious Mountain View home. And he didn't fend

off" aU of the women that sought him out. For much of the time after

Hummer Winblad's woman who was close

investment, he focused on one
at hand: Alicia Morga, the beautifiil young lawyer who followed Barry

from Wilson Sonsini to Hummer Winblad, and who joined Napster in

Few within the company and even fewer outside
turn as Barry's assistant.
knew about the relationship. Shawn didn't talk about it because he
wanted to keep what little privacy he had. And Morga didn't talk about it
because she worried that the personal and professional overlap could hurt
her reputation at Hummer Winblad.
Shawn "didn't turn into an asshole. He's still a good kid," Ritter said.

"But as the press kicked in, and he was on the cover of this magazine and
that magazine, he had less time to code. Then he got used to not coding."
Shawn sometimes frustrated Ritter and Kessler with how long he took to
make modest upgrades to the Napster client. As Shawn lost some of his
drive, he devoted hours to distractions like the game Quake 3, which the

( 252 ) JOSEPH MENN

Napster crew installed on a company server. Shawn entered a contest for

Quake players, using the screen name "Napster." Of the hundreds of peo-
ple playing, it's unlikely anyone suspected that he really was who he said

he was. Shawn played with the same focus he had brought to his file-

sharing program, keeping at it until he was number one, and then he quit.

Shawn also tried to spread good cheer internally, requesting a Ping-Pong

table for the office and a basketball hoop for outside, just like other

well-funded Valley start-ups.

Parker and Ritter were having a much harder time. Parker's e-mails

turned him into a scapegoat, not an appealing mascot like Shawn, and his
public appearances were curtailed. "Hank was never able to forgive me for

those remarks," Parker said. "If I had a chance of finding a meaningful

role inside the company before that, I didn't anymore." Shawn said that
Barry just wanted Parker to find "a job where he could do something tan-
gible." But that would have been hard for Parker even without his fall

from grace. After the first months, Parker had never done much that was
concrete at Napster, and the tolerance for that kind of meandering was

gone. "He was young and kind of immature, I guess just inexperienced,"

Shawn said. "Parker's more of a strategy guy, a vision guy, and he was still

learning how to influence the direction of the company with his ideas."

Parker went off for a vacation in August, trying to reassess what he

could do to be most useful at Napster. When he came back, Barry made
it clear that he would be most useful out of the company. Parker was
followed around the office like a walking liability. Devastated that he was
unwelcome at the company he had helped create, Parker saw it was obvi-
ous that he would be fired. He resigned in humiliation and tried to think

of what to do next. He tried writing, then consulting, but "my whole

sense of identity was wrapped up in Napster," Parker said. "I was incred-
ibly depressed. It took a long time to stop thinking about it day in and
day out."
If the spotlight had been Parker's undoing, one of Hitter's gripes was
that he had never gotten a chance to be in it; Ritter got almost no public

recognition. What he did have was authority inside the company. Since
moving west, he had the same rank as Shawn. "He did the client, and I

did the server, and we didn't ask each other's permission" to make
changes, Ritter said. As the company grew, Ritter was insulated from the

all the rave ( 253 )

top by more and more layers. Napster's innovation continued to stagnate.
Most incredible to him, Hummer Winblad's leadership didn't seem any
better than Richardson's. Barry brought badly needed money and a mis-

guided belief that Napster would win in court. But he had little to say to

the hacker staffers and barely tried. He was stiff in company meetings,
and his occasional companywide messages were often sent from the

mountaintop via his favorite toy, a BlackBerry wireless pager. Barry

clamped down on the company's public relations, hiring President Clin-

ton's deputy communications director from the 1992 campaign, Washing-

ton strategist Ricki Seidman, who monitored Barry's and Shawn's media
contacts from afar. Barry also warned staffers that an outside law firm
would investigate press leaks. "With Eileen, at least someone was out
there with an opinion," Ritter said. "It may not have sounded intelligent,
but at least it was a representation of the beliefs I thought the company
was founded on."
Ritter had nearly quit back in April 2000, when his first six-month
contract ran out and Kessler had been less than enthusiastic about paying

Ritter 's bonus. That was also the time when the venture deals kept falling

through. "Eileen could not get John [Fanning] out of the company," Rit-
ter said of that era. "All these things were coming to a head. There's a
cliche that engineers always think they're the center of the universe, and
they never are. But I look at Napster, and it had no business model, a bad
legal strategy, and no value in the management. All it had was the tech-
nology." Back then, Ritter had talked to Ali Aydar about coming with
him to start another firm, figuring that the two of them together could
get Shawn to follow. One day after lunch, the two walked for blocks,

hashing through the problems at Napster, and Ritter tried to convince

him that leaving was the only logical thing to do. Aydar seemed to agree,

then wavered and did nothing. "I could never get him stable enough to go
to Shawn with it," Ritter said.

So Ritter, too, had stayed. Since then, he had seen Napster get both
much bigger and much closer to extinction. Near the end of the summer
came another blow. John Fanning accidentally sent someone inside Nap-
ster an e-mail disclosing that Napster was in talks for an investment by
Bertelsmann. The e-mailed documents included the terms under discus-
sion and an embarrassing laundry list of disclosures Napster had to make

( 254 ) JOSEPH MENN

to its potential new backer. It was alarming enough to a true believer like

Ritter that Napster could become an arm of a record company. Personally,

it was more insulting to learn about chief operating officer Milt Olin's
perks: a $50,000 signing bonus, a $1,500 monthly car allowance, and
$3,200 in monthly rent for an apartment. In addition to the raft of litiga-

tion, the unresolved issues that had to be disclosed included Tom Car-
mody's claim "through John Fanning" that he still had the right to sell

Napster-brand clothing; Draper Atlantic's recently reiterated claim of a

right to get in on any new round of funding; the company's failure

through June to defend the rights to its trademark; and numerous

accounting and tax headaches, including the fact that Shawn, Parker, and
others had never turned in receipts for their original moving expenses.

Barry returned to promoting Shawn as spokesman, albeit more

carefully watched than before. Far better a likable teenager than a corpo-

rate lawyer, as far as swaying the public was concerned. That fall, in a

controlled setting free from hostile questions, Shawn testified before

Orrin Hatch's committee at a field hearing in the senator's home territory

in Provo, Utah, laying out his intentions in creating Napster and some of
how the technology worked. On September 7, 2000, Shawn appeared on
the MTV Video Music Awards show, introducing Britney Spears. Shawn
had been nervous about it, since he tended to clam up before crowds. He
sent a message to Ian Rogers, formerly of NuUsoft, explaining that his

nerves might be a problem. Rogers begged him to say something signifi-

cant: It was the most prominent positive exposure for a hacker in history.

"Say something; I'll even write it for you. Don't just say, 'Thanks,'"

Rogers implored him.

Shawn didn't end up saying much. "I was about as nervous as I've ever

been," he remembered. He even called his mother, telling her he couldn't

go through with it. But he did, and he was "When I was walking on
glad.

stage, there were a lot of people in the crowd who were in the front area,
and they were saying reaUy nice stuff," Shawn said. "I just had to read the

TelePrompTer and not freeze up." After MTV show host Carson Daly
introduced Shawn to massive applause, his main message was a visual

appeal for peace: He wore a Metallica T-shirt, which he told Daly had

all the rave (255)

been "shared" with him, though he was thinking about buying one. The
onstage banter was as brief as Britney's outfit. "The sooner I can get off
stage the better," Shawn said before introducing the teen pop star.

More to Shawn's liking were the concerts he got access to through

Napster, and the chance to meet idols like Billy Corgan, then with the

band Smashing Pumpkins. In a backstage chat after a Pumpkins show,

Shawn connected to Corgan at a level that had little to do with music and
more to do with the difficulties of success. "It was before the Pumpkins
broke up," Shawn said. "Billy was really unhappy. It was hard to talk to

him, because he was kind of in his own world. I understand it now,

because I've been there. You go through a period of burnout with some-
thing, and you know you have to make a decision. You're consumed by it.

You're trying to figure out how to let something go, how to move on from
something. Next time I saw him was after the band had broken up and he
was working on a side project, and he was incredibly happy."
Shawn himself didn't seem very happy in interviews he gave the

media around that time, and he was often unsmiling in photographs. He

said that he was having at least a little fiin at the company, that it was just

hard to do it in front of prying eyes. "I enjoy talking about Napster but
not having to do press. If anybody saw me on camera, that probably
means I wasn't having fiin," Shawn said. "If you're, like, a musician or a
sports player, you know if you do really well, you're going to be famous or
there's going to be some notoriety associated with that. But if you're a

computer coder, you really don't expect that kind of stuff to happen. A lot
of times, I would hear about an interview, and it would just make me
nervous and affect my ability to work."
That didn't diminish the sex appeal. The September 2000 issue of
Vanity Fair included a photo feature on "enfantrepreneurs," with Shawn
looking miserable. The writer described him as "shy, street-smart beef-

cake." Shawn's fame peaked with his appearance on the cover of the
October 2 Time magazine. The writer had been to the offices six weeks
before, when Napster spokesman Josef Robey sent a companywide e-mail
asking employees to behave and to remove any "Hilary/Lars target prac-
tice signs" and other indications of revolutionary spirit. The article

painted a flattering and largely accurate portrait of Shawn, though it

omitted his hacker roots and the internal chaos at Napster.

( 256 ) JOSEPH MENN

 With so much glory to go around, it looked as though Ritter was
going to be able to get a piece of it later that month. Wired magazine had
conducted its annual poll of techno-enthusiasts and was giving its Rave
Awards October 12 at the Regency Theater in San Francisco. As with
most similar awards where the public had any say, Napster cleaned up. An
e-mail sent to Napster hands the day before the ceremony told staffers
that Napster had won for Best Music Site, Most Innovative Web Start-

Up, and Best Guerilla Marketing. In addition, fifteen thousand Wired

readers had voted Shawn Tech Renegade of the Year, ahead of Nullsoft

founder Justin Frankel and Ian Clarke, the Irish creator of FreeNet, an
even more decentrahzed peer-to-peer system. As was the case with many
Napster administrative communications, the e-mail came from Alicia
Morga.
David Spade was hosting the Rave Awards, and musician Beck would
perform at the party afterward. Also attending were San Francisco mayor
Willie Brown and Daisy Fuentes, the MTV personality. The morning of
the event, spokesman Robey e-mailed a dozen top employees, inviting
them to the VIP party beforehand. An hour later he disinvited them, say-

ing that he had "just been informed that the space for the pre-party is

tight and can't accommodate all." Ritter and product marketer Brandon
Barber, who had both planned on accepting awards, couldn't believe the
snub. Four awards, and only Shawn and Barry would be there to bask in

it? After a flurry of discussions, Robey reinvited Ritter, Barber, and mar-
keting VP Brooks to the VIP party. When the actual event began, he

wrote, "Jordan will go up with Shawn to accept best music site. Brandon
and Liz wiU go up to accept best guerilla marketing."

It wasn't national television, but Ritter was truly excited. Bill Joy, the

principal author of a popular version of the Unix programming language

and a cofounder of Sun Microsystems, was getting the Wired Visionary
award on the same night. And for once, Ritter would be on stage next to

Shawn. The preparty went fine, and Ritter was enjoying himself as he sat

at the Napster table for the awards ceremony. Then someone approached
and said that Courtney Love had requested that Shawn alone come up to

accept the best-music-site award. The Wired editors sided with Love, who
was one of the night's top draws and sported a famously indomitable wiU.
Ritter was flabbergasted, but there was nothing he could do. When

all the rave (257)

Shawn went up solo, he told the crowd he didn't know what to do
onstage. A Nullsoft employee called out, "Steal something!" which Shawn
didn't think was funny. Soon it grew obvious why Love, draped in a clingy

white dress, had wanted Shawn by himself. She couldn't keep her hands
off him, and she introduced him to the crowd as "my future husband."
To his credit, Barry brought Ritter with him to accept the innovative
start-up award and graciously pushed him alone toward the microphone,
where Ritter raised his fist and saluted Napster's by-then 35 million users.

Afterward, Love came to the Napster table and would not go away. She
sat in Shawn's lap, flirting heavily enough to get mentioned for it in the

San Jose Mercury News. What she didn't know was that the woman
seething quietly by Shawn's side, Alicia Morga, was his girlfriend.
Physical attraction aside, Love had another reason for being drawn to

Shawn: He was the enemy of her enemy. In fact, if Shawn was the record

industry's biggest enemy. Love was probably the runner-up. In January

2000, after Love announced that she wouldn't deliver the records she
owed Geffen Records and its parent. Universal, Geffen had sued her. She
countersued, arguing that the contract was "unconscionable" and there-
fore unenforceable. Love's countersuit said that it was virtually impossible

for bands to turn in the seven albums required in traditional seven-year

deals, since the labels also require lengthy tours and sometimes insist on
gaps between releases. And the record companies kept the books, charg-

ing for production, marketing, and other costs before distributing any
royalties. In the case of Love's band, Hole, after seven years of work, the
four band members had collected a total of $375,000, less than $14,000

per year apiece.

A WEEK AFTER THE Rave Awards, an old friend heard that Jordan Ritter
was at Napster and tracked him down. Ritter wrote back a long e-mail
explaining how worn out he was.
"Most people want to know what happened at Napster. You know,
I'm sorry, not only am I personally sick of Napster (as if that weren't bad

enough), but I'm personally sick of talking about Napster. I stayed only

for my fellow team members (no, not the money, they jacked all of us
except Shawn), and at one point even for Shawn, but my personal growth

( 258 ) 30SEPH MENN

stunted the day I landed here, and hasn't really advanced since. . . . Help-
ing lead a revolution is hard on the body AND soul, and last I checked,

the revolution leaders were always killed and beheaded, so who the flick
knows what's going to happen to us. . . . Did I mention how fucked up
everyone's values are here? It's a requirement, I think, on CA rental agree-
ments or mortgage apps —Check if you are: [ ] a heartless fuck [ ] a

money-grubbing sadistic flick [ ] a techno-geek loser flick with no life [ ]

a wannabe of any discipline listed above. If you didn't check one of the
above, please go the flick away because you will be miserable here. Some-
how I missed it, but I know it had to have been there. . . . Life goes on,

and we all go on with it. Problem is, I have no idea where I'm going. I

just look for peace of mind — constantly."

Soon after, Ritter met with the head of a private-financing start-up in

San Francisco who offered to double his salary. His resistance to leaving
was gone. On October 31, 2000, Ritter wrote another letter, resigning

from the company he had helped build. He sent it to all the staff.

"To those most important to me, and to the company: It has been a

long road for all of us, even for the few that have only been with Napster
for a short time. Revolutions take energy, commitment, and sacrifice, and
are, almost always, won at great cost and expenditure of effort. Napster

has never been an exception to this rule; against forces of all odds
duplicitous and self-serving uncles, angry rock bands, an entire industry

up in arms — ^we've really struggled, together, for what we believe in, for

an enlightened future, for everyone. I can't express my gratitude enough

for everyone's hard work — ^you must never forget that the sum of the
parts can't amount to much without the parts themselves. Please, don't

underestimate your impact on the company and the world; Napster needs
you to be whole, the Revolution needs you to carry on the torch. And so

it is with a very sad and weary heart that I inform you all I will be leaving
Napster. ... my departure is not a reaction to this company or events

within, but a proactive change in my career and life. I must stress this

again: I am leaving only to continue my personal growth and develop-

ment of my professional career. For those of you who might be interested,

I will be joining Roundl Inc. as Vice President of Technology, and am

extremely happy to report that Round I's primary charter is to soften and
streamline the process of funding companies, to make future investment

all the rave ( 259 )

experiences like Napster easier ones. Oh yeah, and to make money. Good
luck, Napster, and Godspeed."
He signed it: "Jordan Ritter, Founding Developer. Joined in June of
1999."

It was Halloween, just a year after the rave in Oakland, when Napster
had about 400,000 registered users. By the time Ritter served out his final

two weeks, the number would pass 40 million.

Shawn thought Ritter had done the right thing. "He was getting

really down and bringing people around him down," Shawn said. "He got
the opportunity to move on to something that enabled him to get more
responsibility and have a little more freedom, so I think that was
definitely the right move for him." But Shawn wasn't there to tell Ritter

any of that. He was in New York with Barry, announcing Napster's latest

would-be savior.

( 260 ) JOSEPH MENN

 bertelsmann

A HALLOWEEN DAY 2000 PRESS CONFERENCE IN NEW YORK

revealed an astonishing alliance between Napster, on its knees in court,
and the parent of one of its five archenemies, German publishing con-

glomerate Bertelsmann AG, owner of number three record label BMG

and the world's largest book publisher. Random House, had decided it

was better to join together than to fight —or perhaps best of all, to bet

both ways. BMG had been bombing financially, and Bertelsmann

thought that a Napster-like distribution system might give it an unbeat-
able advantage. As reporters gawked at Bertelsmann CEO Thomas Mid-
delhoff hugging Shawn Fanning, they heard even more than the usual
amount of hype. "There's no question that file-sharing will exist in the

fixture as part of the media and entertainment industry," Middelhoff

declared. "Now the show begins." Shawn was visibly excited as well. "If

you think Napster is great now, just wait," he promised.

( 261 )
 Of the media barons, MiddelhofFwas among the most predisposed to

making a break with the past. Just forty-seven, he had written his doctoral

thesis on new media, and he brought an intense focus on the field to old-

line Bertelsmann when he joined it in 1994 as head of corporate develop-

ment and multimedia. Traditions ran deep at the company, founded in
1835 as a hymnal publisher. It was at Middelhoff's urging that the giant
invested $50 million in America Online in the mid-1990s, a modest
gamble that would prove to be worth more than $1 billion by itself A
classic business opportunist, Middelhoff ascended to the top office at Ber-
telsmann and sold the investments in AOL and other dot-coms before
the market fell, raking in more than $7 billion. Then Middelhoff felt left
behind when his friend AOL leader Steve Case bought Time Warner. It
wasn't a coincidence that in announcing the Napster deal, Middelhoff
said anew version of its service could be just as big as AOL.
The alliance had begun coming together not long after Napster was
crushed by Judge Patel's proposed injunction, a move that simultaneously
ended AOL's remaining interest in buying Napster. After Barry drove off
Edgar Bronfman and his Universal Music, he reached out to the other
labels. "Hank was realty about the negotiations, really enjoyed the process
of flying out to meet people and these kinds of things," Shawn said. But
Barry was rebuffed almost everywhere, including at Bertelsmann's BMG.
"They were never serious. First they were willing to create a subscription

service but not take down the pirated service. Then they said they would
do it simultaneously. But they still haven't come to terms on licensing

even now, which tells you something," a BMG executive said a year and a
half later. As Napster's money ran low, Barry, Hummer, and John Fan-
ning tried to attract financing, without success. Napster wooed Microsoft,
Intel, and even tiny Liquid Audio. "I just got used to being turned down,"
said chief financial officer Lyn Jensen.
In the meantime, Middelhoff's e-commerce chief, Andreas Schmidt,
was spending more and more time in Silicon Valley, chatting up digital-

music firms and talking about the potential for Bertelsmann buying
them. "He looked Hke Daddy Warbucks, with Bertelsmann's cash coming

out of his ears and his breast pocket," said Gerry Kearby, head of Liquid
Audio. "They were making overtures to purchase every company in the
space. They were thinking about forming a giant roll-up of companies."

( 262 ) JOSEPH MENN

As Schmidt talked to Kearby, Napster's name inevitably came up, since it

was the bane of Liquid Audio's existence. Kearby had known Barry for

years, from when Barry had been Liquid Audio's lawyer at Wilson Son-
sini. And Hummer Winblad had funded Liquid Audio. So Kearby
helpfliUy passed on Barrj^'s phone number.
It was also around then that Middelhoff and Schmidt discussed the
potential for a Napster settlement with a discouraged Bronfman. Middel-
hoff and Schmidt left the meeting thinking there was some kind of deal
possible, that Bronfman just wasn't seeing it. Schmidt called Barry, leav-

ing the music people at BMG out of the loop. The talks were on again,
off again, and all over the map both figuratively and literally, taking place

in New York, Miami, and San Francisco. The deal died three times. At
last, a handshake deal was struck. According to the draft that John
Fanning accidentally sent to Napster troops, it called for a $20 million
loan, convertible into 58 percent of the company.
BMG chief operating officer Strauss Zelnick was at home sleeping

off the effects of oral surgery when Schmidt called him. "We're investing

in Napster," Schmidt said. "We're dropping the suit and making the
announcement tomorrow." Stunned out of his stupor, Zelnick couldn't

believe it. "How could the music group not know about this?" he said.

Zelnick and his digital-music deputy, Kevin Conroy, went into overdrive
trying to convince Schmidt and Middelhoff to hold off on the deal and

rethink it. They argued that if Bertelsmann made a deal with someone
violating copyright protections, the company could be putting its own
vast treasure of copyrights at risk under the legal doctrine of unclean

hands. And they said that if Bertelsmann was still intent on such a pur-

chase, it should simply wait for Napster to go bankrupt, then buy the
assets for pennies in court. Schmidt said that Napster wouldn't go bank-
rupt and might even soon file for an IPO, that its legal fortunes had
turned with the help of David Boies. But he passed along Zelnick's
complaints to Middelhoff. "In his view, we are supporting an illegal act,"

Schmidt wrote.
Middelhoff agreed to delay the announcement to hear out Zelnick,
Conroy, and BMG chairman Michael Dornemann. In one follow-up
conversation outside a New York conference room, Schmidt told Zelnick
that he was missing the essential fact —Napster had 33 million customers
all the rave ( 263 )
who would become Bertelsmann customers. "They aren't customers,"

Zelnick replied. "It's free. And they have zero revenue. I don't like invest-

ing in companies with zero revenue." Schmidt: "They're going to pay."

Zelnick: "For them to pay, you need aU our competitors too. Thomas, give

me two weeks, and I'll try to bring in two other companies. If we take all

the credit for this first, you're not going to get Edgar to play or Warner
to play"

Zelnick ran through the numbers with Middelhoff, arguing that con-
verting free users to paying users was incredibly difficult. Say 20 percent

of Napster's users weren't kids without credit cards and could affi)rd the

service. That's 6 million people. A good conversion rate is 2 percent, he

said. "Let's call it 10 percent. That's six hundred thousand consumers
paying $10 a month. That's only $72 million a year in revenue." Not very
exciting, Zelnick said, certainly not worth an investment of tens of mil-
lions. But looked at another way, the bet was a modest one. Bertelsmann's
loan was a small piece of its $1.6 biUion in annual profit.
The talks resumed for even higher stakes. At one meeting with
Middelhoflf in Miami, Barry passed around a half-dozen copies of the
Time issue with Shawn on the cover. Always conscious of his own treat-

ment by the media, Middelhoflf paid attention. Bertelsmann ultimately

pledged to lend Napster $60 million at just 6.1 percent interest to develop
a royalty-friendly system, with the understanding that other labels would
soon join in and take some of the equity that Bertelsmann could claim if

it converted its loan and took 58 percent ownership. If Bertelsmann failed

to convince another big label to settle in the next two years, then the loan
could convert into just 35 percent of Napster's stock.
Like Yosi Amram, Ron Conway, and Hank Barry before him, Mid-
delhoff was seduced by Napster's technology and incredible audience. But
he wasn't as bhnded. UnUke Barry, he didn't believe Napster was legally

defensible. "It is true that this private exchange of music via the Internet

has thus far infringed upon the copyrights of artists and record compa-
nies," he wrote to colleagues. And instead of a direct stock investment

Uke those of his Napster predecessors, he was willing only to extend the

loan. The reasoning was spelled out in a September 2000 briefing for
Bertelsmann executives by a consulting firm. In a slide identifying the

( 264 ) JOSEPH MENN

major risks of Bertelsmann's involvement, the experts wrote: "How do we
avoid liability for old and ongoing copyright infringements? [Bertels-
mann] provides loan and thus does not become a shareholder."

In a worst-case scenario —Napster losing in court and getting driven

into bankruptcy — they predicted that Bertelsmann would emerge with
Napster's valuable technology. Because the loan would be secured by
those assets, Bertelsmann "gets first priority security interest," the con-

sultants wrote. A separate task force of Bertelsmann executives assigned

to "Project Thunderball" recommended that Napster's existing system

stay operational until the new, copyright-friendly version was ready, even

if it took six months or more. That way, the maximum number of sub-
scribers could be pitched to switch. "Otherwise the customer base will be

disbursed [sic]" the task force concluded in a memo sent to Middelhoff.

At Zelnick's insistence, BMG wasn't party to the deal. It would keep

its part in the lawsuit alive. And the Napster project would come under
Schmidt's e-commerce domain, not Zelnick's music group.
As a last step, Middelhoff treated Shawn to dinner at Manhattan's

Post House, where they had steaks and a $219 bottle of Phelps Insignia
Cabernet. "I had to explain the Bertelsmann culture and the Internet, the
rapidity with which everything is changing," Middelhoff said. Shawn was
surprisingly hard to convince. "I had a lot of concerns about it," he said.

"There was this whole notion of selling out to a label." Shawn called his

mother on Cape Cod, teUing her he was thinking of walking away from
Napster for good. "I think I want out," he told her. Shawn's mother
encouraged him to stick with what he had started. Four days before the
deal was disclosed, Napster added sweeteners for Shawn. The company
raised his salary to $120,000, promised a November bonus of $60,000,
and vested the remaining 993,000 of his 2.7 million shares. Shawn began
to focus on the bright side. "Bertelsmann understood the software. They
understood why it was interesting," he said months later. And "they

seemed Hke if they got involved with a company, they gave them a lot of
freedom to let them continue to do what made them successful and offer

help where it's necessary—^which we needed. It was a really good rela-

tionship in terms of deals and trying to get Hcenses and security and stuff.

Those were all new issues for me that took a while to get comfortable

all the rave ( 265 )

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 hne 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 —Middelhoff
week 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 earher in the year, Bertelsmann didn't yet have the equity to divide

( 266 ) JOSEPH MENN

up among the other companies. "They never suggested anything other
than a way for them to own Napster and us to pay them. It was never

Thomas doing a favor for the industry," said Bronfman, who told Mid-
delhoff the day after the announcement that he had made a mistake. Nat-
ural competition among the record companies made what was already an

unlikely resolution far less achievable, Bronfman and others said. And
Bertelsmann's presence didn't make up for two huge holes in Barry's plan:

the lack of a business model — —and the

still lack of working technology

that would guard against constant pirating. Bertelsmann's move just made

it the biggest victim stuck to the Napster tar baby. Middelhoff said the
failure of the rest of the companies to follow him showed their poor
analysis, not his. "The rest of the industry didn't see what was going on,"
Middelhoff said. "They don't have an end in this legal battle, and on the
other hand [Gnutella successors] Kazaa and MusicCity and all the others

have tremendous growth rates, and nothing can stop them."

Under the new Napster regime, Barry was still in charge. But he had
a new and more powerful partial master in Bertelsmann. That was good
for Napster's ability to continue as a going concern, but it further compli-

cated Barry's renewed efforts to find his own successor as CEO, someone
with more operating experience. The candidates weren't sure who was

calling the shots on the Napster board, Barry interviewed several pro-

spective CEOs himself, enhsted Hummer Winblad to help, and hired an

outside executive-search firm. According to several people involved in

the search, Bertelsmann's ill-defined power was only part of the prob-
lem. Barry didn't seem to be sure what sort of a CEO he wanted: an
entertainment-industry veteran, a Silicon Valley technologist, or a differ-
ent beast entirely. Since Barry thought that a lot of the issues, and
Napster's ultimate fate, might well be decided on Capitol Hill, he even
gave some thought to recruiting a lobbyist for the top job.
The candidates for permanent Napster CEO ranged from former
eGroups Inc. CEO Michael Klein to Mark Curcio of the film company
Artisan Entertainment and even to Julie Wainwright, the former CEO of
the disastrous Pets.com and a friend of Ann Winblad. Most of the people
approached about the top job at Napster were too curious to reject the

all the rave ( 267 )

idea out of hand. The biggest draw may have been the enormous public
exposure that would come with the job. And if the company could re-

emerge, the CEO would be a hero to music fans and businesspeople

alike. But many candidates who came to Napster's new offices in Red-
wood City ended their trip more confused than they had been before.
The CEO job would not have been an easy sell in any case. Napster
was functioning only because the prehminary injunction against it had
been stayed pending an appeal, and most appeals fail. Beyond the court
case, Napster was in a perpetual state of uncertainty. "Hank was busily
going around trying to ink deals with other labels, and he was being fairly

unsuccessflil doing that. At the same time, they were trying to rewrite the

system to be able to conform to a royalty structure," one serious candidate

said. "The issues included how they were going to transition to a pay
service, how to account for it, and how it would work from a mechanical

perspective," he said. "Most importantly, in talking to Hank, it was obvi-

ous they didn't know the profile of the guy they wanted, because they

didn't know what the service was going to look like. At the end of the

day, since they didn't know what the strategy was, they couldn't agree on

who the person was."

One explanation for the confusion was that Barry and his partners

had different ideas than the rest of Napster and Bertelsmann about how
to proceed. A number of candidates thought they had offers from Barry,
who purported to be running the show, only to find out that he had been
outvoted by the Napster board or other influencers. "There were a lot of
decision makers," one person close to the process said. "You had different

companies with different objectives and cultures." As the search dragged

on from Barry's appointment in May 2000 until past the same month the
following year, a less-charitable interpretation emerged: that Barry liked
being CEO, and even though he took pains to refer to himself as

"interim" chief, he would be perfectly happy to continue in the job for as

long as possible.
While Eileen Richardson had pushed Shawn alone in front of the

cameras, Barry was allotting himself more of the spodight. He did more

of the speaking than Shawn at joint press conferences, and he made many
more trips to testify in Washington and to speak at industry conferences.

Some CEO candidates concluded that Barry was running such a long,

( 268 ) JOSEPH MENN

thorough search just to convince his unseen superiors that he was doing
as much as he could. "He was going through the motions for his partners

and the boards," one candidate said. Presenting a bewildering array of

potential CEOs and potential business approaches made it more likely

that the board would throw up its hands and keep letting Barry do as he
saw fit. "Hank enjoyed the job. He enjoyed the profile," the recruit said.

Inside Napster, more employees were beginning to chafe at Barry's

autocratic style. Barry had a serious temper, especially under pressure, and
the edicts emanating from his BlackBerry rubbed the engineers the

wrong way. "He was often extremely charismatic and focused," one

employee said. "Other days, he would just be negative and not reason-
able." Eddie Kessler, who initially enjoyed strong support from Barry, said
that he was, in "some respects, a breath of fresh air." But Barry's top-

down style included hiring executives without the input of the leadership
team, which "was kind of unheard of in the Valley," Kessler said. Shawn
said Barry turned out as advertised — a solid lawyer. "He took care of the

legal stuff very well. But I think the Htigation was kind of a losing battle
overall. Not because ultimately it went against us but because every time
we expected it to go one way, it went the other. It was a roller coaster."

For whatever reason, Barry was still interim CEO, and there was
still no deal with the record labels, when the U.S. Court of Appeals for

the Ninth Circuit finally ruled on Patel's preliminary injunction in Febru-

ary 2001.
In August 2000, Napster had filed its fiill appeal. It asked the three-

judge panel to revisit nearly every holding by Patel, including those inter-
preting the VCR case, the DMCA safe harbors, and the Audio Home
Recording Act. And the company argued that Patel's injunction was
overly broad and too harsh, in effect a form of prior restraint that would
convert the network from a peer-to-peer system to "a centralized source
of authorized material." Hammering on the "substantial noninfringing

use" argument from the VCR case, Boies said that seventeen thousand
artists had authorized their work to be distributed, at least when it came
to concert recordings —even MetaUica. The major labels, meanwhile,
released only twenty-six hundred albums a year. Boies said Napster would

all the rave ( 269 )

enable secured-format distribution as soon as it became available. The
record industry filed its own brief in response, and amicus friend-of-the-

court briefs rolled in on both sides from the ACLU, the Digital Media
Association, the Motion Picture Association of America, and a troupe of

eighteen copyright-law professors. Even federal officials weighed in,

hurting Napster when they stated flatly that the Audio Home Recording
Act, which permits private noncommercial copying, didn't apply.
The climactic oral arguments came October 2 in the appeals court's

ornate hearing room in downtown San Francisco. Carter-appointed cir-

cuit judge Mary Schroeder, the most senior of the three judges, sat

between the two men on the panel and said the lawyers for each party

would get just twenty minutes to make what could be the defining argu-

ments of their careers. As CNN transmitted the proceedings live, Boies

approached the lectern and told the judges that the record industry was
asking them to make a series of rulings unprecedented in the history of

copyright law. For Napster to be found Hable for contributory or vicarious

infringement, he said, its users would have to be found liable for direct

infringement. Yet the users were deriving no financial benefit from their
actions, and Napster had no financial relationship with them.
Just minutes into Boies's presentation, the judges began firing ques-
tions. Since Napster users were sharing music with millions of anonymous
strangers, "you can't characterize that as personal and private use," like

that allowed under the Sony VCR decision, Schroeder said. Boies shifted

to the legitimate uses of Napster, which he said could be a minority but

still "significant" enough to qualify the technology for protection under

Sony. That protection "is particularly important in a changing technol-
ogy," Boies said, and more and more artists were permitting the use of
their music on Napster. Judge Robert Beezer, a Reagan appointee,
jumped into the fray with questions about how Napster worked. Napster's

computers might be devices with legitimate uses, he said, but the pro-
gramming that linked users together was an ongoing service. That
impUed it didn't qualify for protection of the sort accorded the VCR,
which Beezer said was "clearly, from beginning to end, a device." Boies

tried dodging again, arguing that Napster's directory should be protected

as free speech. "The First Amendment has never been held to prohibit

( 270 ) JOSEPH MENN

the use of a directory service," Boies said. The third and least experienced

appellate judge on the panel, Clinton appointee Richard Paez, said little.

Russell Frackman had enjoyed Boies's rough treatment, though he

had been through enough proceedings to know it didn't foretell victory.

He was feeling more pleased as he stepped to the lectern that Judge

Schroeder was in charge: He had argued the flea-market case before her
and won. Frackman was glad that for the first time in his career, he had
brought his children to hear him argue. But he did little more than clear

his throat and begin to praise Beezer for questioning the relevance of

Sony when he too was interrupted. "Are you prepared to discuss the

knowledge issue?" Beezer asked, thinking of the DMCA protection for

Internet service providers that are merely unknowing conduits of infor-

mation. "I find that extremely troublesome. . . . If this is a service, how are

they expected to have knowledge of what comes off some kid's computer
in Hackensack for transfer to Guam?" Frackman was prepared. "You start

out talking about what they designed their system for. They designed it

for piracy," he said. One last time, he read Sean Parker's smoking-gun
e-mail saying that anonymity was important since Napster users "are
exchanging pirated music." And moving quickly to take advantage of
Schroeder's presence, he said, "This is no different than the swap meet."
The advantage immediately proved smaller than Frackman had
hoped. "This is different," Schroeder told him. The flea-market operator
could wander through at any time and learn that pirated goods were
being sold on its premises. "Napster doesn't have any idea at any point in

time," she said. The judges kept firing questions at Frackman and Boies
during their rebuttals. At the end, some observers thought the question-

ing was tougher on the music industry than on Boies. Perhaps the suave
litigator had pulled another rabbit out of his hat.

Neither side expected to wait long for a decision. But the delibera-
tions among the judges and their clerks wore on and on. The longer it

lasted, the better Napster thought its chances were and the more nervous
Frackman became. In the interim, Patel appointed a mediator to try to

broker a settlement: The parties met only once, and the talks went
nowhere. On February 12, 2001, four months after the oral arguments,
the Ninth Circuit finally handed down its verdict. It was unanimous, with

all the rave (271)

Beezer, who had asked Schroeder for the task, writing the fifty-three-
page opinion on behalf of his colleagues. The panel found that Napster's
users were indeed violating music copyrights, just as Patel had ruled. The
Audio Home Recording Act didn't apply. The VCR case didn't help

much either, because Napster had an ongoing role in its users' behavior.

And the judges agreed that Napster was likely to be found to be con-
tributing to its users' copyright violations, since its worth would rise with
the number of users it drew. "The district court did not err: Napster, by its

conduct, knowingly encourages and assists the infringement of plaintiffs'

copyrights," Beezer wrote. The judges accepted Patel's finding that

Napster was hurting CD sales. And the panel said that Napster could

police its system to locate copyright-infringing material, just as it blocked

people who misused the system in other ways.
The only thing the appeals court told Patel to change was the way she
crafted the injunction. Patel had wanted Napster to make sure that each

file offered for transfer didn't violate a copyright. The appeals court, on

the other hand, moved the burden back toward the labels. Napster would

still have to police its system to the best of its ability, but the record labels
would have to submit the names of files with infringing works. Possibly
the result of a compromise among the judges, the court may not have
realized that it was calling for a logistical nightmare. As it noted else-

where, Napster's internal documents showed it stood to win if the labels

had to report every file, because each would probably be gone by the time
Napster got around to disabhng it, with another user's unblocked version
of the same song taking its place.

StiU, it was a resounding victory for the record industry. "The court of
appeals found that the injunction is not only warranted, but required," the
RIAAs Hilary Rosen said. "And it ruled in our favor on every legal issue

presented." The ruling also made it less likely that Napster could make a
deal with labels besides Bertelsmann, Schmidt acknowledged. At a San
Francisco press conference, Barry vowed to ask for a rehearing and to
appeal to the Supreme Court if necessary. And he amplified his calls for

pressure on Congress. "We encourage members of our community to

contact their representatives to let Congress know how much Napster
means to them," he said. Shawn, meanwhile, said he was working on a

( 272 ) JOSEPH MENN

new version that included better song-blocking and "a lot of really pretty-

amazing things."

The old Napster was still running as Patel digested the appeals

court's directive to modify her injunction. But in a sign of how dire things

had become, Barry decided to try to give the stalled negotiations with the

labels some electric- shock treatment. He called Rosen at the RIAA.

"Hank said he had talked to Thomas [Middelhoff], and they really
wanted to settle this thing. They were going to go to the companies.
Then I got a call from a reporter who told us Barry had scheduled a press

conference the next day," Rosen said. She called Barry immediately,
stunned that he would be so amateurish as to make a negotiating offer in

public. "It was the only time in three years of dealing with this that I lost

my temper," Rosen said. "I really thought if they played it right they

could have settled it. I spent an hour on the phone screaming at him from
BMG's offices in L.A. I said this was going to put them back another
year. He told me I was wrong."
The next day, over Napster strategist Ricki Seidman's objections,
Barry held his press conference in San Francisco, joined by Schmidt and
Middelhoff. Before puzzled reporters, they announced that Napster was
offering the labels $1 billion over five years, to come from subscription

fees on the new service, whenever it was ready. Per label, that worked out
to a very small increase in revenue — a few percentage points. Per song, it

worked out to pennies. Given the history of bad blood between Barry and
the labels, the offer was dead on arrival. "You claim you want to be legiti-

mate and negotiate licenses based on real business models," Rosen said in

a statement. "Act accordingly. Stop the infringements. Stop the delay tac-

tics in court, and redouble your efforts to build a legitimate system."

Richard Parsons, co-chief operating officer of AOL Time Warner, added

this: "They need to shut down —then we can talk." Even Barry later

admitted that the press conference was a mistake.

Patel issued her revised injunction on March 6, 2001, and Napster
was forced to begin blocking file names listed by the record companies.
At first, it did so by each song's name. It was an imperfect solution, and

all the rave (273)

the most devoted Napster users found ways around it. One popular trick

used pig Latin for the names of songs and bands. A more sophisticated

tool, developed by onetime message-board moderator Wayne Chang and

posted at Napsterhelp.com, used encryption to trick the Napster servers
into steering users to MPS files without ever gleaning the file names. "I

just wanted to bring back what was once so great," Chang said. The
record industry complained about all of the holes, and Patel declared
Napster's early filtering efforts to be "disgraceful." Napster's lawyers
promised the company would do better, and in April it bought a cutting-
edge but still-imperfect system for identifying song files by the music
they contained. Patel appointed a technical adviser to baby-sit the new
effort and demanded frequent updates. The fans were miserable. On one
personal website devoted to all things Napster, the host wrote: "Is anyone

out there besides me wincing at what's beginning to look like the cruel

and unusual death of Napster? It's getting just too painfiil to watch."

Napster was fast running out of alternatives. In June 2001, the com-
pany's first step in further appeals, asking the flill Ninth Circuit to revisit

the decision of its panel, failed to muster a single judge's vote in support.

That scotched talk of a long-shot petition to the U.S. Supreme Court.

Instead, Napster promised that its new subscription service would be
available later that summer. Until then, it was stuck trying to make its

new screening system something less than a complete disaster. Patel had
given Napster until June 28 to perfect the system, and the in-house engi-
neers clearly weren't going to make it in time. Barry hired several consul-

tants, including early Listen.com executive Richard Carey as chief

engineer, and Ucensed still more outside technology in a frantic bid to get

the new audio-fingerprinting system up and running by the deadline.

In addition to the legal pressure and the possibly insurmountable

technical issues, Napster was wracked by near terror of its own upper
management and by internal divisions. Some of the best engineers, led by

Ali Aydar, had gotten themselves assigned to the far-more-pleasant task

of developing the next generation of Napster, instead of the more-urgent
but depressing task of working on the filter. And there were stiU true

believers
—"Shawn's fans," as Carey called them—^who thought the com-

( 274 ) DOSEPH MENN

pany would still win the lawsuit and that any filtering was a sellout.

Shawn himself tried to keep quiet about his objections.

"There were times that the company has been forced due to litigation

or other things to take paths that I didn't think were ideal, and it was
tough being associated with that," Shawn said. "Especially with a lot of
the publicity. Because I remember when we started filtering ineffectively,

sort of overblocking, I was getting recognized a lot. Kids were coming up

and saying why can't I find this or why can't I find that, and that was
definitely rough, because I wasn't involved in choosing whether to filter or

determining how the filtering system should work, but I definitely felt the

repercussions of that."

Carey had never seen anything like the mess Napster was in. "The
chaos inside the organization was just strangling," he said. "It took me a

week to figure out that everyone was operating based on fear —of the law-
suit, of management, of making a mistake. It was bizarre." Kessler was in

charge of the screening effort, and Barry had lost faith in his ability to

puU it together. "The first thing Hank asked me to do was fire Eddie,"

Carey said. "I said there's no way I can ship if I fire Eddie. It's aU in his
head." After getting berated one time too many by Barry, Kessler quit in
May. Barry realized that Carey had been right: With no Eddie, there was
no chance. A three-day soap opera ensued, ending only when Barry apol-
ogized and asked Kessler to come back.

The high-speed filtering effort went down to the wire. Just before the

June 28 hearing, Carey and the others had it working in the lab, with

"duct tape and gum holding it together." On June 27, Napster switched to
the new system. As copyright-infringement notices poured in by mail,
e-mail, and fax, the new audio-based system knocked out the protected

songs, and the exhausted engineers congratulated each other. "The tenor
of the conversation changed, to the system having a chance. And that

would be the beginning of a possible settlement," Carey said.

As the Napster crew kept checking the new system's performance,

they found a tiny percentage of errors —only 1 percent or 2 percent of the

banned songs were getting through, mostly because of mistakes in the
infringement notices. Try as they might, the engineers could not get the
error rate down to zero. And Barry and Napster's other lawyers were fac-
ing the possibility that Patel would hold them in contempt of court.

all the rave (275)

Kessler was torn but eventually sided with the lawyers. "Something was
going wrong," he said. "I said we should take it down until it's resolved."

Napster took down the system voluntarily on July 1, 2001, as it kept

hunting for bugs, cutting off what had grown to 2 million simultaneous
users, close to AOL's figures and an incredible technical achievement for

such a small number of engineers and machines. Instinctively, Aydar felt

the long fight was over. "Once we shut it down, we knew it was going to

be hard to get it up again," he said. "It was Uke trying to repair the leg of

a racehorse. You just shoot it. But everyone felt like it was Napster, so we
can't let it go."

At a crucial July 11 hearing, Napster lawyer Steve Cohen told Patel

that Napster could relaunch the system and weed out 99 percent of the
improper songs. But Patel was adamant. "It's not good enough until every
effort has been made to, in fact, get zero tolerance," she ruled. "She was
fiirious," Kessler said. "She said it's got to be perfect. I said I can't build a

system where I can guarantee that it will be perfect." Unable to promise a

faultless system, Napster stayed shut. An appeal to the Ninth Circuit

arguing that Patel's zero-tolerance standard was too high was rejected.
And despite assurances to fans that it would soon be back, Napster's
second-generation system for authorized recordings wouldn't go live until

a beta test, free of major-label content, in early 2002.

After so many false deaths, Napster was truly gone, or at least in an

indefinite coma. By now, tens of millions of people had been conditioned
to expect free and easily accessible music, and they were willing to hunt
around for new tools to use. Napster's would-be successors, meanwhile,

had had plenty of time to work out the kinks in their systems. The early

versions of Gnutella had difficulty in scafing to handle massive traffic. It

was also slow, and it had bugs that were difficult to overcome without
some user sophistication. But millions tried anyway: The number of hits
to Gnutella websites ran into the tens of millions. Litigation would also

target GnuteUa, but its lack of centralization made it close to impossible

to shut down. As Shawn had feared, the open-source effort made steady

and eventually profound improvements to Gnutella. Derivatives includ-

ing Amsterdam-based Kazaa and NashviUe-based MusicCity Morpheus

took hold in 2001, collectively surpassing the traffic Napster had at its

peak. As with Gnutella, there was no practical way to stop them. The

( 276 ) JOSEPH MENN

open-source versions of Napster also came into their own with the real

service down. OpenNap servers began spreading in earnest. While Mor-

pheus, Kazaa, and the other descendants of Gnutella got far more press
attention, by some measures the OpenNap version of Napster draws more
music seekers, according to the RIAA's Frank Creighton,

With no more legal recourse and no deal with the labels in the

offing, Napster's only other way out was a Hail Mary to Washington,
D.C., and Barry lobbied hard for a mandatory license to force distribu-
tion of digital music. Helpfully, the record industry's unpopularity had
only grown during its fight with Napster. And a law that would save
Napster by making the labels share their wares in new ways was not
unprecedented. The 1992 Audio Home Recording Act was the grandest
of the recent compromises, expressly allowing home copies and mandat-
ing fees from the sale of blank cassette tapes that were in turn distributed
among music authors, performers, and publishers. Congress had also

stepped in to allow cable companies to rebroadcast shows aired by con-

ventional networks and to sort out the rights of jukebox operators.
Much more commonly when Congress got involved, it tended to
favor copyright holders — so much so that most Americans probably
believed that copyrights had always been around, had no caveats, and

were permanent. In fact, for most of the world's history, musicians were
free to pick whatever music they wanted, earning money only by per-
forming. The same is true of Shakespeare and other writers, who were
free to copy each other or stage someone else's plays. When copyrights

did come into being, it was because technology had changed the lay of

the land.
Copyrights began in 1710 in England, after technology made it feasi-

ble to copy manuscripts. Since then, there has always been a balancing act

between the interests of the creators and the interests of the public. The
pubHc's side of the balance, according to some scholars, probably peaked
in the United States at the Constitutional Convention of 1787. It was
there, at the behest of James Madison, that the framers adopted the
copyright- and-patent clause of the document, giving Congress the power
"to promote the progress of science and usefiil arts, by securing for Hm-

all the rave (277)

ited times to authors and investors the exclusive right to their respective

writings and discoveries."

The importance of the phrase 'limited times" was not lost on early-
legislators, who saw copyright as a trade-off" that ensured everyone would

have free use of discoveries and artistic works after an appropriate period
of compensation. The first U.S. copyright law provided that the exclu-
sive rights would expire after a term of fourteen years, renewable at

the author's request for another fourteen years. As copyright holders

increasingly, large publishing companies —grew in power and made return

trips to Washington, that copyright term was extended eleven times in
the past forty years. More than once, it happened just as Mickey Mouse
was nearing his expiration date (or emancipation date, depending on one's
point of view). In 1998, the Sonny Bono Copyright Term Extension Act
set a new record, extending what had grown to seventy-five years of copy-

right for corporate works and life-plus-fifty years for works by individuals
by a further twenty years apiece. The bill was challenged in court by a
team including Lawrence Lessig, who argued that Congress's constant
extensions were a way of sneaking around the constitutional requirement

for limited time. After Lessig's side lost in lower courts, the U.S. Supreme
Court in 2002 agreed to consider the case.

So far, the courts have been almost as uniformly pro-copyright holder

as Washington has been. Under the Digital Millennium Copyright Act,
it's illegal to hack encryption technology that protects copyrighted mate-
rial. And this has been interpreted very broadly. In one of the best-known
cases, that involving the DVD encryption technology known as CSS and
the override program called DeCSS, it is often missed that DeCSS did

not itself facilitate copying. CSS kept DVD discs from being played on
computers that didn't contain the Ucensed technology for de-encryption.
In practice, this meant that only Windows and Apple machines could

play theDVDs. DeCSS just allowed Linux users to play DVDs that were
purchased legally. Any DVD could be copied, legally or otherwise, with-
out having to de-encrypt it. Yet not only were the purveyors of DeCSS
found to have violated the DMCA, but journaUstic websites that linked
to pages that linked to pages that contained the DeCSS program were
barred from doing so by the courts.
Likewise, the record industry won the biggest digital lawsuit besides

( 278 ) JOSEPH MENN

that against Napster on far flimsier grounds. The labels went after

MP3.com in the year 2000 and won a $110 million judgment over one of
the dot-com's services, which allowed legitimate compact-disc owners to

listen to versions of that music from wherever they logged on. The big
legal issue was a small practical one: MP3.com established a database of

recorded music so that when consumers electronically registered their

own CDs, the company knew what music was on it. The industry argued

that the very creation of that database, while made with purchased CDs,
was unauthorized copying for commercial purposes and not fair use. And
it won.
Oddly enough, Napster didn't start the fight in Washington that

eventually was its last hope: Orrin Hatch did. The Utah Republican
chaired the powerfiil Senate Judiciary Committee, where he had been
looking to make laws on issues less divisive than those that previously had
split the panel, which included ideologues from both parties. Hatch had
brought together diverging interests before, when he crafted the Digital
Millennium Copyright Act, which gave at least something to all sides.

He had made a bigger splash by riding the Clinton-administration Justice

Department to go after Microsoft. Critics pointed out that two serious
Microsoft competitors happened to be based in Utah, but Hatch's brand
of conservatism did call for free markets, which he felt were being stran-
gled by the monopoly from Redmond.
During their work on Microsoft hearings. Hatch staffers led by his

chief counsel, Manus Cooney, had spent many days in Silicon Valley.
Cooney began hearing complaints about the difficulty in getting music
licenses from the Big Five labels, and he had long conversations with
Michael Robertson ofMP3.com. Early in 2000, a friend suggested that
Cooney check out Napster, and he downloaded the software. Cooney
began tracking the RIAA lawsuit, then in its early stages. When Hum-
mer Winblad invested in May, the entertainment industry grew more
alarmed about Napster's prospects. Cooney thought the issue was some-
thing Hatch could use to forge a compromise. So he called Hank Barry at
Hummer Winblad, eventually reaching the Napster CEO on his cell

phone in an airport. They talked for twenty minutes, and Cooney began
laying the groundwork for hearings before the Judiciary Committee.
To those familiar with reading tea leaves inside the Beltway, the wit-

all the rave ( 279 )

ness list for those first hearings in July 2000 was strikingly pro-Napster.

There was a Sony executive, and there was Lars Ulrich of Metallica. But
there were also Barry, MPS. corn's Robertson, and Gene Kan of Gnutella
fame, representing the future of piracy if nothing was worked out. For a
number of reasons. Hatch was leaning towards Napster's side. Back then,

Napster had not yet lost the pivotal argument over a preliminary injunc-
tion, and the worst of the internal documents had not been publicized.
And the entertainment industry is one of the largest contributors to the

Democratic Party. But the most personal motivation came from a surpris-

ing place —Hatch's own musical aspirations. Probably most of his Utah
constituents were unaware of it, but Hatch fancied himself a late-
blooming songwriter. From the late nineties on. Hatch had cowritten
some three hundred songs and recorded several CDs, many of them
religious. And his early impressions of the record industry were like those

of lots of aspiring musicians — frustration that bordered on anger. "I know

something about songwriting. And I know something about prejudice,"
Hatch said at an industry conference in early 2001. "Many of the outlets

that handle inspirational music won't handle mine, because they don't

think Mormons are Christians."

For Hatch, anything that got obscure gospel and other kinds of
unheard music in front of more people was a good thing. And if the

record industry's economics didn't favor that outcome, change could be

mandated from above. "Online systems provide a cheaper and easier

method of self-publishing," Hatch said, citing the case of a musician

friend who couldn't make a dime until he sold eighteen thousand CDs
through his record label. Even then, the friend wouldn't have the rights to

his work, "It's kind of like paying off your mortgage, and the bank still

owns the house," Hatch said.

In private discussions with the RIAA's Hilary Rosen before the July
2000 hearings, Hatch had raised the prospect of compulsory licenses as a

threat to prod the industry toward negotiating licensing deals. Barry

could have seized the moment and testified for such legislation. But
before the preliminary injunction hearing, Barry still believed he would
win his case in court. So he explicitly asked Congress not to change the
laws. It was Ulrich, instead, who pleaded for help. "Allowing our copy-
right protections to deteriorate is, in my view, bad policy, both economi-

( 280 ) DOSEPH MENN

cally and artistically," Ulrich testified. "We have to find a way to welcome
the technological advances and cost savings of the Internet while not
destroying the artistic diversity and the international success that has
made our intellectual-property industries the greatest in the world." With
Barry not pushing for a new law, there was httle that Hatch could do. At

the end of the year, Cooney left and joined Napster as a lobbyist, recusing

himself for a year from speaking with Hatch.

By the time of the next hearings, in April 2001, everything had
changed. Not only Judge Patel but also the Ninth Circuit had spoken
against Napster, Only now did Barry ask Congress to force digital licenses

on the record industry. "The Internet needs a simple and comprehensive

solution, similar to the one that allowed radio to succeed —not another
decade of Htigation," Barry said. But it was too late. In the intervening
months, an army of entertainment-industry lobbyists had descended on
Hatch. They both talked tough and played to his ego. The most impres-
sive display of the second tactic unfolded at a Washington hotel on
March 21, just weeks before the new hearings. That's when the National

Academy of Recording Arts and Sciences, which presents the Grammy

Awards, bestowed Hero Awards on an unlikely group, including Hatch,
powerfiil House Democrat John Conyers, and, for credibility, hip-hop

star Missy "Misdemeanor" Elliott. At the lavish awards dinner, the record

industry outdid itself by drafting Nashville singer Natalie Grant to croon

one of Hatch's own songs, "I Am Not Alone," to the audience. According
to the academy, the crowd went wild.
The industry didn't have to stall Hatch for long. He would be out of
the center chair in two months, to be succeeded by Democrat Patrick
Leahy of Vermont, after Sen. Jim Jeffords bolted the Republican Party

and handed Democrats a Senate majority. And Leahy had bigger priori-

ties than following the advice of a corporate lawyer turned Silicon Valley
CEO, especially one whose company had been damned by a federal
appeals court as a piracy profiteer.

The last Senate hearings gave Bertelsmann little hope, and the com-

pany was growing frustrated. The initial six-month estimate for a legiti-

mate service was ending, and the product was still at least three months
away. In April, Bertelsmann's eCommerce Group met to discuss two
goals: getting content from the other majors and getting management

all the rave ( 281 )

control of Napster, perhaps "by replacing HB [Hank Barry] with a Ber-

telsmann manager." The team wrote that it would be "legally difficult, but
doable" to develop a lawful way to get rid of Barry, and the executives
mused about promoting Shawn to co-CEO alongside a Bertelsmann
loyalist.

Just two weeks after Patel ruled that Napster would stay dark until it

could block 100 percent of the infringing material. Hank Barry finally

named his replacement. He remained a Napster director and went back to

Hummer Winblad full-time. Successor Konrad Hilbers was the first

career businessman to take the reins at the now-desperate company. A

German with a doctorate in business who had worked at a U.S. bank,
Hilbers's most important qualification was a stamp of approval from
Bertelsmann CEO Thomas Middelhoff—just as Bertelsmann's managers

had wanted. Middelhoff had cultivated a personal relationship with

Shawn, one that had a strong impact on the youth, so his endorsement
meant even more. "I like Thomas a lot," Shawn said. "When things got

really down, he was actually a major reason that a lot of times I chose to
stick it out. He believes in us so much, and he chose to put a lot of his

own personal credibility and other things behind it." Hilbers, too, seemed
like "a nice guy" to Shawn —perhaps too much so. "I was wondering,
wow, does he know what he's getting into here? The music industry, the

circumstances, the characters involved, the amount of work . . . Konrad

just came off as just a nice guy, and I was wondering if he was going to be
cut out for it." But Shawn decided within a few months that Hilbers was
nearly perfect. "It has been the greatest decision we have ever made. The
organization needed some help. We needed to be cleaned up, we needed
some help with structuring engineering."

If Napster's most logical remaining exit strategy was a takeover by

Bertelsmann, it could only help Barry to have someone in the lead who
was known and respected by the German company. A buttoned-down but
strategic thinker, Hilbers had worked for Bertelsmann's business-

development team, as chief financial officer of its publisher Bantam

Doubleday Dell, and as CFO of AOL Europe. A last six-month stint as

chief administrative officer at Bertelsmann's BMG music division had

been less pleasant, as Hilbers clashed with the rest of the bureaucracy
there. During settlement negotiations on BMG's behalf with Napster, he

( 282 ) JOSEPH MENN

decided the other side was more interesting than his own. He got
Middelhoff's blessing to leave and his waiver of Hilbers's old pledge not
to leave Bertelsmann for a competitor.

Hilbers interviewed with Barry and John Hummer and decided the
Napster job was for him. "I believe in the peer-to-peer aspect, the com-
munity aspect," Hilbers said. Like many others before him, he also saw

the logic of having a system for wider introduction of music to fans for-

merly reached only through radio. "The Internet is providing a chance for
a totally new radar screen," he said. "There's a great middle ground

between Britney Spears and a San Francisco garage band." Hilbers had a
few big goals. With hopes fading of a rescue in Congress, he needed to

work harder on a deal with the labels. And he needed to have a system to
show them that was secure and controlled digital rights —something like

what Napster should have had in the first place.

Not surprisingly, both priorities turned out to be much more chal-

lenging than Hilbers had anticipated. He replaced Eddie Kessler with

Shawn as Napster's chief technology officer, but a secure system took six

more months. It allowed for multiple payment streams, for technology

that blocked duplication, and for the "expiration" of songs. It was so
complex that Shawn admitted he didn't understand all of it, even at a
high level of abstraction. He stayed focused on making the projected
experience for the user as much like that of the old Napster as possible.

When it came out in January 2002, Napster II worked fairly well, and
Shawn was satisfied with it, though most of the content was from lesser-

known bands and minor labels.And while Napster had faded from the
headlines and the hearts of many, who turned to new services like Kazaa
and Morpheus, BearShare and LimeWire, 3 million people applied to be
Napster II beta testers. The best part was that it still felt to the user like

the Napster of old. "Aside from the limited content, it is actually a very

seamless implementation of a system that's a thousand times more com-

plex then the old system," Shawn said. Reviews by the users were mixed.
The technology generally worked, though the payment system wasn't
operating. The look and the feel were good, but there wasn't enough

music. And Napster evidently planned to charge for a limited number of

downloads, the majority of which couldn't be burned onto CDs or trans-

ferred to other people electronically. Many users who shopped around

all the rave (283)

found that the other services were too good to give up. Hilbers declared
the beta test a success. Privately, he thought a full release needed six

months and $30 million.

By nov^^, many were arguing that all of the industry's antipiracy

efforts, from the Secure Digital Music Initiative to the Utigation, were
essentially pointless. Even if technology to prevent copying were put in
place everywhere, someone could always just play the music and record it

on another device, then post it to one of the Gnutella derivatives. "Copy

protection on computers has been shown again and again to fail," con-
ceded Dan Farmer, the record-industry consultant Patel used to supervise
Napster's compliance efforts. "Napster has shown two things: that people

don't give a rat's ass about the quality of the sound when compared to the

availability and that the avarice of consumers is not bounded by sound

ethical reasoning." Other industries began worrying that they were next
to be Napsterized. But many were frozen in the headlights, unable to

decide between taking something like the record industry's failed hard-
line stance and offering something small that might keep a lid on the
willingness of consumers to cheat. "We're the canaries in the coal mine,"

warned EMFs Jay Samit.

With the old, unrestrained Napster gone, it made sense for the

labels to help a new, legitimate service arise in its place. And the tone of

the negotiations with the labels improved considerably with Barry's

departure as CEO. But he and Hummer still had two of the four board
seats, and they weren't helping to get a deal. In September 2001, Bertels-
mann eCommerce CFO Bill Sorenson wrote to his boss Andreas

Schmidt, complaining that Barry and Hummer were wasting Bertelsmann

AG's investment. "They have done nothing to forward the business plan.

They have successfully alienated the entire recording industry . . . they

have failed repeatedly to deliver the project on time," Sorensen wrote.

"They have wasted millions upon millions of dollars (BAG's doUars) in

pursuing a strategy of litigation, litigation, litigation." Schmidt resigned in

November as his eCommerce Group was merged into the Direct Group,
which includes book and record clubs and electronic retailer CDNow. The
Direct Group adopted responsibility for the Napster effort.

( 284 ) JOSEPH MENN

 But Hilbers made progress with two of the more peace-minded
labels. "By the end of this third quarter in 2001, we had two settlement

and licensing deals on the table ready to be signed by AOL and EMI,"
Hilbers said. The deal with AOL called for $20 million in settlement
money, $5 million in an immediate advertising purchase, and $20 million
in future advertising. Of course, it would take Bertelsmann's money to

make it happen, and Hilbers passed up word of the pacts. "Thomas Mid-
delhoff was in favor of the deal," Hilbers said. But "he did not convince
his fellow board members to give us the money." The board wanted all of
the majors at once. They said, "We are not going to invest now a substan-

tial amount of money in Napster, exercise our warrant, and then find
[our] selves in litigation with Universal, Sony, and BMG," Hilbers said.

AOL, whose quest for end-of-quarter ad revenue by any means

would soon land it in trouble with regulators, took the board-level rever-
sal especially hard. "AOL is really pissed," Hilbers wrote to Middelhoff.
"They backed out of the RIAA negotiation and now we took the deal off
the table." It took a call from Middelhoff to AOL executive Richard Par-
sons to smooth things over.
The industry rebuffed Hilbers's request for a moratorium in the legal
fight, wanting to close the door by winning the case against Napster in a

motion for summary judgment. Given Patel's previous rulings, it seemed

like a sure thing. And it would have been, were it not for the record
industry's one big mistake. In forming MusicNet and Pressplay, the labels

had acted very much in concert. Napster general counsel Jonathan

Schwartz, a Barry recruit and a former Justice Department official, raised

the last-ditch defense that since copyright law calls for a balance between

the rights holders and the public, a cartel should not be allowed to set the
terms by which the public will get access — that would amount to copy-

right misuse and a violation of public policy. For an industry already sub-
ject to antitrust accusations, the joint ventures were less than smart, and
Patel let them know it. In an October 2001 hearing on the industry's
request for summary judgment, a day that could well have been Napster's
end, she instead took the industry to task for the joint ventures. "I'm
reaUy curious about how the plaintiffs in this came upon the idea," Patel

said. "Even if it passes antitrust tests, it still looks bad, sounds bad, and

smeUs bad." Patel put off ruling on summary judgment to allow yet

all the rave (285)

another set of Napster lawyers to seek industry documents on the joint
ventures. By the time she made that decision, the Justice Department said

it would investigate the industry's practices as well.

Patel's unexpected reservations about the industry's conduct gave the

labels more incentive to compromise.

And Napster had one more card to play —the threat of bankruptcy,

which would likely leave the record labels with nothing, while Bertels-
mann stood to walk away with the technology. Renewed talks between
Hilbers and the RIAA picked up steam, and a consensus emerged around

Christmas. The bottom line had a large number of zeroes: Bertelsmann

would pay $250 miUion to resolve the claims in the suit. "The numbers
were high but realistic," Hilbers said. The negotiations seemed so promis-
ing that both sides asked Patel to delay proceedings in the case, and at
least one record company announced to its affiliates that a deal was at

hand. In January, Hilbers sent a proposal to Bertelsmann based on the

proposed $250 miUion settlement with the major labels. Like the aborted
AOL-EMI deal, the resolution would have allowed Bertelsmann to con-

vert its warrants and take fliU control of Napster. Hilbers sought an addi-

tional $85 million to finance the revised Napster service. Bertelsmann's

Direct Group backed the idea. But the world had changed. "The bubble
had burst already, but it had gotten worse since then, with the recession
and September 11," Hilbers said. "Everything contributed to people
being more cautious. Napster was a very bold idea, and it took a lot of
money." Middelhoff 's adventure had already proved more costly and more
difficult than Bertelsmann's board had anticipated. Above Hilbers's head,
Bertelsmann demanded more: a guarantee of fiiture licenses with more
content. "We noticed it was only a limited catalog of seventy thousand

titles, but the consumer is asking for hundreds of thousands," Middelhoff

said. "And we don't want to have licenses only for personal computers
we want portability" for MP3 players like the Rio.

"Bertelsmann in the end turned my proposal down," Hilbers said.

Bertelsmann told Hilbers he could keep trying for more complete
licenses, but he knew it was hopeless: he would never get what they
wanted. "With that, this whole strategy fell apart."

The second reversal undercut Hilbers's credibiUty at the bargaining

table. "Clearly Konrad was not speaking with any authority, and the rules

( 286 ) JOSEPH MENN

seemed to be changing," a top record-industry executive said. The talks

never regained momentum, due mainly to inattention on Napster's part.

"It was like someone let the air out of their balloon," another record exec-

utive said. Hilbers remained outwardly optimistic. "I put together a

model of what Napster needs," Hilbers said then. "We need to convince
[the labels] that MusicNet and Pressplay didn't work. I think we are

close." But in March 2002, Hilbers acknowledged that Napster had at

least temporarily walked away from work on a deal. He stressed then that

Napster had time: Patel had recently allowed Napster nine more months
to obtain documents about the labels' alleged misuse of their copyrights,
putting off the possibiUty of summary judgment until 2003. Yet with
every month that passed, the rival pirate services got bigger, while the

only thing getting bigger at dormant Napster was the red ink. Soon,
the labels learned why Napster had suddenly grown too preoccupied to
negotiate.

all the rave ( 287

 12

the coup

NAPSTER CEO KONRAD HILBERS HAD ABANDONED TALKS WITH

the record labels for a good reason. In Germany, Thomas MiddelhofF had

decided that the time had come for Bertelsmann to make its own move.
Desperate for cash, Napster had begun laying off staff in the spring of
2002 and returned to the pubUsher asking for still more money. Seeing
Napster's weak bargaining position, Middelhoff suggested that Bertels-
mann simply buy the company instead. He reasoned that Bertelsmann
would have a better chance of striking a deal with the other labels than

Napster would, since Napster appeared hamstrung by the Hummer Win-

blad directors. Before, Bertelsmann had exercised some control through

its ties to former employee Hilbers, two previous loans totaling $85
million, and the warrants that entitled it to claim a majority stake. That
one-step remove from ownership provided an extra layer of protection in

( 289)
the event that Napster lost the court case. But since Napster wasn't opera-
tional, Bertelsmann began to feel that it would have no liability even if

Napster were hit with a massive judgment. For a modest amount of

money, Middelhoff thought, he could buy the remainder of Napster out-
right, eliminating the hard-line directors and positioning Bertelsmann to
get all the benefits if it could work out a deal.

Bertelsmann's board members, looking ahead to a planned Bertels-

mann IPO, were nervous about the figures bandied about in the lawsuit.
The most recent settlement talks had called for hundreds of millions of

dollars to change hands. "Some of the board is scared by the amounts,"

one person in the acquisition talks said. And the directors reminded

Middelhoff that he had missed earlier deadlines for the birth of a new
Napster. But Middelhoff stuck to his vision. He thought that even if the

profits of a legitimate Napster from music distribution were small —even

if no major-label settlement were ever reached —the same secure technol-

ogy could be used to circulate all the content produced by Bertelsmann,

including music and magazines. "It's a perfect flag in the ground to

become a major distributor of media objects," Hilbers said.

Morpheus and the other pirate services might have more users and
more content, but because they were so decentralized, they couldn't easily

convert to a system with central control, Hilbers argued. And without

central control, they couldn't have consistent search quality and legitimate
rights management. The new Napster's 2002 beta test, which used twenty
thousand volunteers, showed that the system worked. Bertelsmann had
the content. And it could add its record club and other features to the

new Napster, including links to its CDNow retailer.

So Middelhoff" told Bertelsmann U.S. executive Joel Klein, the for-

mer Justice Department trustbuster, to open serious talks with Napster

over an acquisition. That naturally included the Napster board, now made
up of Hilbers, Hank Barry and John Hummer of Hummer Winblad, and

John Fanning. Fanning had held onto his board seat when the venture
firm invested but pledged to vote his shares according to the board's
wishes in the event of a decision changing control of the company. Hum-
mer Winblad had insisted on that proxy, knowing full well that he was

unpredictable. But it would soon be clear that even letting him stay on
the board was a mistake. Hummer Winblad would have done better to

( 290 ) JOSEPH MENN

follow the lead of other venture-capital bidders who called for Fannings
complete removal.
With Hilbers's industrywide settlement shot down, Hummer Win-
blad was in a mood to sell. But the figures discussed were a far cry from
what the venture firm had hoped Napster would bring. Instead of
hundreds of millions of dollars, Bertelsmann was offering $15 million and
would forgive the amount that Napster owed Bertelsmann. That ofier

was probably low enough by itself to enrage Fanning, never one to under-
estimate Napster's worth. But that was just the start of it.
Two years before, as the negotiations for Hummer Winblad's invest-

ment in Napster had dragged on and the stock market began sinking, the
terms had been revised several times. In the end. Hummer Winblad won
what is known as a liquidation preference in the contract. Not uncom-
mon in venture deals, the clause meant that when a liquidation event

occurred —be it a bankruptcy, an acquisition, or something more pleasant

Hummer and the smaller investors in that last Series C round would get
84 cents of every dollar received until the total reached $17.1 million, the
amount everyone had invested over Napster's life. Unless they had sold
shares privately, most investors who had got in early and cheaply would at
least lose the benefit of those discounts. If Bertelsmann was going to pay
only $15 million. Hummer would get the lion's share, and John Fanning,
Shawn Fanning, Sean Parker, and Eileen Richardson would get nothing
at aU for their Series A Junior and common shares.
Bertelsmann had even raised the prospect of buying just Hummer
Winblad's stake, an idea that confirmed to Fanning that Barry and John
Hummer were looking out for themselves at the expense of the rest of
Napster's shareholders, including loyal employees. (Bertelsmann Direct

Group CFO Bill Sorenson testified later that the idea originated at

Hummer Winblad, but Barry and another person in the talks denied
that.) That discussion eventually led to the plan to buy all of Napster,
according to Sorenson and the other party. "There was a series of back
and forth relative to purchasing either Hummer Winblad's equity or all of
the equity of Napster," Sorenson said. The very real possibiHty of being
left with worthless paper instead of IPO riches made Shawn, who was

a significant stockholder, and many other holders working for Napster

very unhappy.

all the rave ( 291 )

 No one, of course, was as angry as John Fanning. He and his lawyers

pored over all of the documents. Finally, they found what Fanning con-
sidered to be a sufficient loophole. As is typical with young companies,
several series of stock issued by Napster had the right to convert into
common The Series A
shares if a majority of that class of stock agreed.

Senior documents, however, appeared to have a strange twist. They said

that if that class of stock wanted, it could convert not just its own shares

but everyone's shares into common. Napster's management dismissed the

wording as a careless error. No company, an ally said, would give that

kind of power to one group of investors.

But it was enough for Fanning, who planned a lightning attack just
as the Napster board prepared to weigh Bertelsmann's offer. Fortunately

for him, the Series A Senior shares were controlled by one man — ^Yosi

Amram. Amram, having a lot of money at stake, agreed to invoke the

conversion clause. (Later, after Hummer Winblad threatened to sue him,

he repudiated the conversion, saying that Fanning had pressured him to

sign it before Amram left for a vacation in Brazil.) Converting Hummer

Winblad's shares to common meant that its liquidation preference would
evaporate, so that everything Napster took in from a sale would be
divided evenly. The second phase of Fanning's scheme was to take con-

trol of the company. If Hummer Winblad no longer had special shares

entitling it to name two of the company's directors, then all the other

shareholders could vote them out and try their own negotiation with

Bertelsmann.
So it was that the disgraced ex-chairman decided to see if he could
round up a majority of all the newly common shares and vote Barry and
John Hummer off the Napster board. Fanning tracked down Bill Bales in

Georgia and called Richardson and other investors who were almost as

stunned to hear his voice after a two-year gap as they were to hear what
he had to say. Fanning proposed that they all sign documents supporting
the replacement of the two Hummer Winblad directors with Amram and
Martin Kay, the CEO of Fanning's NetCapital. Richardson's heart
pounded at the idea: It was like a flashback to everything she had hated
about Napster. But with a haff-million dollars at stake, she figured that

Fanning's far-fetched plan was her best shot.

One by one, other shareholders came to the same conclusion: Fan-

( 292 ) JOSEPH MENN

ning's greed might for once work in their interest as well. He called both
his nephew and Sean Parker and got their proxies. Parker had moved,
then lost his lease and was staying at Shawn's house, and the two friends
hashed through the possibiHties until 5 a.m. Already angry that Barry
would sell them out, they were incensed by a new rumor: that a key point
in the negotiations was Barry's request for a clause from Bertelsmann
protecting him and John Hummer from personal liability. Barry con-
firmed that personal indemnification was an issue in the talks, but he said
he had reason to be nervous: Hilary Rosen had hinted that Hummer
Winblad or its partners would be the next to be sued. Once, Barry told
others, Rosen had warned him: "We know you have a nice house on
Tasso Street, and we're looking forward to having it." (Rosen denied
making so personal a threat.) As they counted votes the day before the
Napster board would meet to vote on Bertelsmann's offer to end Napster's
independence. Fanning and his allies figured they had a good chance.
One problem was Ron Conway at Angel Investors. As the value of
his portfolio plummeted, the quick-dealing Conway had done the
unthinkable and sworn off investing in new companies. Instead, he told

his limited partners, he would dedicate himself to salvaging what could

be salvaged. The glad-hander of old had been replaced by a new Conway,
one who had already forced the liquidation of one Internet incubator. "I'm

a mortician," he complained to one entrepreneur. Because one of Con-

way's multiple investments in Napster had come alongside Hummer
Winblad's, he stood to get some of his money back however the millions
were divided. Anything at all would exceed his expectations: A confiden-
tial year-end rundown of Angel Investors's portfolio, given to the fund's
limited partners, had marked the Napster stock down to zero. Now Con-
way was afraid that the last-minute shenanigans would drive Bertelsmann

away, leaving him and many others who had believed in the firm with

nothing. Conway didn't expect good behavior from Fanning, but he

fired off an angry e-mail to Amram, the professional who was supposed
to know better. "I cannot believe that you are working with John Fan-
ning when he has not invested a dollar in Napster and in fact has
already profited from selling shares when you and I invested real money
in this company," Conway wrote. (To be more precise. Fanning had
invested a grand total of $7,000, according to statements in court.)

all the rave ( 293 )

"BMG is offering us a gift and pretty soon BMG will get fed up and take
the gift back!! Think about it, wouldn't you do the same thing if you were
in their shoes!"

Parker volunteered to try for Conway's support and drove to see him
at San Francisco's Fairmont Hotel on the eve of the crucial board meet-
ing. Caught in traffic on U.S. 101 coming north into San Francisco,
Parker dialed and redialed Conway's cell phone from the car, not realiz-

ing that Conway was on the phone with Shawn. When he finally got

through, Parker told Conway that he had done some rough calculating

and figured that Angel Investors stood to gain or lose only about

$100,000 if Fanning's ploy worked, everyone's shares turned into com-

mon, and the $15 million went to all holders equally. "The only way I

come out ahead is if the coup wins," Parker implored Conway. "I don't

want anything to do with a coup," Conway said.

Parker finally reached the Fairmont, on top of the city's old-money

Nob Hill neighborhood, and walked inside to meet Conway in the lobby

bar. Conway was dressed in his usual casual style, with a shiny green
jacket over a polo shirt. As expected, he continued to argue against a

ninth-inning attack on the board. But as he turned the tables and argued
that Parker should cast his votes against the insurrection, an idea struck

Parker. He knew the math was close. But why was Conway fighting so
hard, when it was clearly in Parker's interest to back the coup? It dawned
on Parker that he and another shareholder he knew. Freeloader cofounder
Mark Pincus, had the swing votes, that without them the coup would fail.

And, he said, "Conway convinced me that Fanning was going to screw

everything up. So I thought, let's use the fact that he's going to screw it

up to our advantage." Parker walked outside into the blustery afternoon

air and dialed Shawn on his phone, pacing back and forth. "Hey, I figured

it out!" Parker told him. "I have enough votes!"

Parker believed he and Pincus, who had taken Napster shares in a

swap of investment holdings with Amram, were now the key to the deal.

He decided he could use his leverage either to force the upstart directors
into office or, even better, to convince Hummer Winblad to fork over

more of the kitty in exchange for betraying the coup. "Hummer's being
greedy. Everyone's being greedy. We're all fighting over scraps," Parker

said after hanging up with Shawn. "Is the coup actually going to happen?

( 294 ) JOSEPH MENN

Probably not. It's the threat that's the point." Sure enough, Shawn passed
on the word that Hummer Winblad was willing to deal. Bertelsmann's

offer would be tabled for the moment, and disaster staved off.

But John Fanning decided he had all the cards he needed and that
Hummer Winblad wasn't going to turn generous unless forced. On
March 25, as compromise proposals floated back and forth. Fanning filed

a lawsuit in Delaware's Chancery Court, which hears many corporate-

securities cases. The suit claimed that all the shares had been converted,
that a majority of the now-common shares had voted to oust the Hum-
mer Winblad directors and install Amram and Kay, and that the Napster
board had refiised to recognize the conversion as legitimate or seat the

new directors. The suit named Barry and John Hummer as defendants.
The two gave no comment to the press, but they and other loyalists were
incensed. The suit asked for expedited review, citing an unspecified "offer

to purchase the company." The Los Angeles Times promptly identified the

offer as coming from Bertelsmann.

The suit did not go well for Fanning, especially after Amram with-
drew his support. And Fanning didn't impress the judge in the case with
his unique performance in a pretrial deposition. Under questioning. Fan-
ning said he didn't recall anything of his talks with Amram about the plan
to convert the Napster shares, let alone recall beseeching him to trigger

the conversion. "Did you discuss with him what the effect of his conver-
sion of his shares would be?" an attorney for the directors asked. "I don't

know," Fanning replied. "You don't remember?" "I don't have a specific
recollection of a discussion that I would characterize in that way," Fan-
ning said. "How would you characterize your discussions with Mr.
Amram on the subject of converting his Series A preferred stock?" "I'm

sorry, how would I characterize them?" Fanning asked. "Yes," the lawyer

said. "I wouldn't characterize them,"

The memory lapse might have strained belief by itself, but Fanning
didn't help his cause when he refiised to give such basic information as
what he did for a living between his stint at Fidelity and the creation of
Napster, or even how he was making money at the moment.
"Do you have any income?" one of the opposing lawyers asked.
"How do you define income?"

"Do you have any source of income from anything whatsoever?"

all the rave ( 295 )

 "Again, how do you define income?"

"Does anybody pay you money for anything?"

"People pay me money, yes."

"For what?"
"You'd have to be more specific."
"No. I want you to answer my question. What do people pay you
money for?"
After Fanning's lawyer objected, Fanning responded: "That's too
broad a question."
"How do you earn your living?"
Fanning paused. "I consider that to be overly broad. I do work as a

director of Napster, I'm the largest individual shareholder, and I was the
founding chairman and CEO."
Fanning said he didn't know if he was still chairman of Napster and
that he couldn't say which other companies he was currently a director of

without refreshing his recollection. When the Napster directors com-

plained to the judge, William Chandler, that Fanning had wasted their
time, the judge agreed. Chandler ordered Fanning to sit for another depo-
sition, answer the questions, and pay what came to $14,503 in fees for the

opposing lawyers' time.

Bertelsmann didn't want to get in the middle of the firefight, and it

urged the two sides to resolve their differences. Among other things, it

demanded a unanimous Napster board vote and 90 percent shareholder

approval. At first, Barry refused to cut any such deal with Fanning. "We
don't negotiate with terrorists," he told others at Napster. But a bargain

was reached in April 2002 that would give Fanning and the other early
Series A Junior holders $2.4 million, while the rest of the investors split

$14.1 million. All that remained was to seal the deal with Bertelsmann.
Surprisingly, even with the total $16.5 million price established and a

truce in Delaware, the talks with Bertelsmann dragged on. According to

people briefed on the negotiations, the stumbling block was whether

Barry and John Hummer could wheedle enough protection out of Ber-
telsmann in the event that the record companies sued them personally.
First, Barry and Hummer asked that Bertelsmann promise that if it set-

tled with the record labels, the settlement would include pledges that the

( 296 ) 30SEPH MENN

labels wouldn't sue directors and investors or that Bertelsmann would
cover the first $10 million in any damages against them. Bertelsmann
agreed. Second, they asked that if Bertelsmann and the labels settled

during a bankruptcy reorganization, the group would get included in

any similar releases from liability. Again, Bertelsmann agreed. Finally,
Barry and Hummer asked that if Napster went into bankruptcy, came
out the other side, and then won music-distribution licenses from the

major labels, those licenses would include the personal-liability releases.

That last demand was too much for the German company, according
to someone on the Napster side of the talks. "They finally said, 'Basta!

[Enough!],' " the person said. Barry recalled the breakdown differently,

blaming it on Bertelsmann. But Napster executives said the more fimda-

mental problem was that Barry had difficulty accepting that Hummer
Winblad would have little remaining stake in Napster when it was all

over. "Hank was upset that Bertelsmann wanted them gone," one execu-
tive said.

Soon the deadline on Bertelsmann's ofier expired, and it withdrew the

deal, just as Conway had feared. It was like all the other negotiating expe-

riences that Bertelsmann and the labels had with Napster before, only

worse and over less. "From the beginning, it was really tough to negotiate
with the Napster team," Middelhofi" said. "Sometimes they changed their
minds; sometimes they had different camps on their side. They continued
to believe Napster had a tremendous upside and tremendous potential
market capitalization."

After the talks for an equity deal collapsed and Fanning's lawsuit
continued, Bertelsmann made a surprise, last-ditch proposal on May 3 to
at least buy Napster's assets through a planned Chapter 11 bankruptcy
reorganization. The creditors would get $5 million and the shareholders
would get nothing, but the technology, the brand, and the employees
would stay together, and Napster could escape Chapter 7 bankruptcy liq-

uidation. As long as talks on that plan made progress, Bertelsmann prom-

ised to put in the first new money in six months, a desperately needed
$50,000 per day to meet the payroll. Barry and Hummer asked questions

all the rave ( 297 )

and expressed little enthusiasm about the asset sale: They would get noth-

ing from the deal, and they questioned Hilbers's loyalty. But they allowed
Hilbers and Napster general counsel Jonathan Schwartz to keep trying,
and the pair presented a finished deal document for the board to vote up
or down on Friday, May 10, with the expiration on the offer three days

away. Barry and Hummer hemmed and hawed, objecting that they
wanted to see how Fanning's legal case played out and that they wanted

to reserve Napster's right to sue BMG, along with the other record labels,
on antitrust grounds.

As it became increasingly clear that the board would not meet to

vote on the offer before it expired, Schwartz wrote a long e-mail on Sat-
urday to Barry, Hummer, and Hilbers, warning them that they were

coming close to breaching their fiduciary duty to get as much as possible

for Napster's creditors. "Given that the company is faced with the most
severe financial constraints imaginable, I do not believe that, consistent

with its fiduciary duties, the board can simply reject the asset purchase

agreement — either by affirmatively deciding to reject it or by not acting

on it by the Monday expiration date," Schwartz wrote. "The company is

insolvent."

Barry and Hummer responded that they would stick with their
plan —no action by Monday, then a meeting of shareholders and creditors
to discuss it later in the week. "Let's move forward with that process as

the board directed," Barry wrote. And they didn't respond to Schwartz's
increasingly desperate pleas that they spell out any remaining demands
for him to take to Bertelsmann. Hilbers then weighed in, backing Nap-
ster's top lawyer and threatening to resign. "This is not a game," he wrote
to the Hummer Winblad directors. "I am not going to abandon this buy-
out deal for no obvious reason and then move forward with layoffs and a
road towards Chapter 7." For good measure, Napster's outside bankruptcy
lawyer. Rick Cieri, the head of that practice at big firm Jones, Day, Reavis

&c Pogue, e-mailed an echo of Schwartz's warning about fiduciary duty.

The escalating disillusionment with Napster's leadership, which
began among millions of fans who realized the game was all about
money, then spread to once-supportive musicians and even to early Nap-
ster employees, was now complete. The company couldn't even keep its

own CEO and general counsel on the reservation. But Barry and Hum-

( 298 ) JOSEPH MENN

mer stood firm. There was no board vote by Monday, and MiddelhofF cut
off Napster's fiinding that day as layoffs and bankruptcy neared.

The next day, Tuesday, May 14, 2002, everything happened at once.
Fanning, Barry, and Hummer were all in Wilmington, Delaware, for an
anticipated three-day trial on Fanning's lawsuit against his fellow direc-
tors. In Redwood City, Hilbers knew that layoffs were inevitable. Just past

9 A.M., he announced his resignation in an e-mail to the staff. "We have

put together what I consider to be a valid and beneficial deal for Napster
over the last weeks. This deal would have allowed [sic] to keep the com-
pany's assets, including its employees, together in the long term. Unfortu-
nately, the board has chosen not to pursue the deal. I am not agreeing
with the majority of the board," Hilbers wrote. An hour later and on the
other side of the continent, the Delaware judge dismissed Fanning's suit
without bothering to hear from any witnesses, ruHng that the company's
incorporation papers made it obvious that no one class of stock could
convert everyone's shares.

Just before noon, Barry called the Napster office and was placed on a
speakerphone as the staffers gathered for what they knew was coming.
Barry said the company couldn't meet the payroll, and each of the seventy
employees had a choice: get laid off or take a week of unpaid vacation in
the hope that he could resurrect a deal. Few agreed to the vacation. As
they milled around after the call ended, executive after executive resigned
rather than wait for the bankruptcy liquidation that would come. "It was
awful. People were glad to get out of there," one said. "Everyone thought
John Fanning was a flick and what he was doing was stupid and greedy,
but in the end it was really an anti-Hank sentiment." Schwartz quit, as

did Milt OHn, the top operating officer and old friend of Barry. Shawn
wavered. Then he resigned, too, organizing a trip that night to a San
Francisco dive bar in the Mission District to toast Hilbers's efforts.
The resignations were a last demonstration of rage at Hummer Win-
blad. "They lost the game of chicken," Conway said that night. "The
bickering of Yosi [Amram] and John Fanning versus John Hummer and
Hank Barry is what caused the shareholders not to get their money back
in March. Now the continued bickering between John Hummer and

all the rave (299)

Hank Barry with Bertelsmann, in refusing to approve the purchase, is

causing seventy people to lose their jobs." Shawn was disgusted, too. Not
only did Barry and Hummer decide to play chicken, he complained to a

friend, they decided to play chicken with a Mack truck. Parker was even
more blunt: "When parasites kill their hosts, they die as well," he said.

But there was still one more emergency backup plan for the system
Shawn had hatched in his dorm room. "A cat has nine lives," Hilbers had
said in his farewell e-mail. The bankruptcy filing would wipe out Nap-
ster's legal liability and Hummer Winblad's control, along with its

investors' equity. And then Bertelsmann, as the largest creditor, would be

first in line to buy the assets. Middelhoff planned to rehire Shawn,
Hilbers, and forty more.

In the harsh media glare from the resignations and investor criticism,
Barry went back to the office and called Bertelsmann's Joel Klein. After

getting the bid up to $8 miUion for Napster's creditors, he agreed to the

Chapter 11 sale. There were no promises of releases from personal liabil-

ity. The two companies announced the deal on Friday, May 17, "We
beHeve in the future of peer-to-peer," Middelhoff said. "This is not the
end. This is the beginning of a new Napster. If this is the only way to get

it done, this is how we get it done. If it takes two or three months, so

what." Middelhoff said Bertelsmann would launch "a legitimate peer-to-
peer service, either with the brand and the technology of Napster or not."
Barry and Hummer resigned from the board. At Bertelsmann's direc-

tion, Napster rehired its leaders, keeping a skeleton staff of eighteen from
among what had been more than one hundred employees. Hilbers

rejoined as CEO and the sole director. On June 3, Napster filed for

Chapter 11 bankruptcy in Delaware, reporting that as of April 30, it had

$7.9 miUion in assets and $101 miUion in liabilities, not counting what it

might owe the record labels. The list of creditors ran in three small-print
columns for fifty-nine pages, from A-A Lock and Alarm to ZZ Top.
Standing out among the technical suppliers, employees, and restaurants

was David Boies's law firm, owed more than $2 miUion. Bertelsmann was
due $91 million. Napster assumed that Bertelsmann's pledge for $8 mil-
lion more, for an ostensible value of $99 miUion, would top any compet-

ing bids for its assets.

Other technology companies by then had released secure peer-to-peer

( 300 ) 30SEPH MENN

 new Napster, including the refurbished
systems similar to the envisioned
Scour.com, without drawing many users. (They also lacked major-label
content, while the new Napster would have at least BMG.) And since

pirate systems housed offshore were well ahead in popularity, some ques-
tioned whether a legitimized Napster was worth even $8 million.
"Free music created Napster," Ritter said, "and free music will kill it."

But now released from both his uncle and Hank Barry, Shawn was
betting on someone he saw as a kindred spirit: Thomas Middelhoff. He
would have to wait through the slow-moving bankruptcy process, but at

the other side would be a boss who wasn't a walking disaster. Middelhoff

did more than get the technology, as Shawn put it. He showed real

courage.

And Shawn and Middelhoff had a secret plan. By then the two real-
ized they weren't likely to get licenses from the other labels at a price that

would allow them to offer Napster at a low cost to consumers. Instead,

Middelhoff was planning to bet big on Napster's new technology. Even

though the company had failed to meet the federal judge's deadline for a

version that screened out unauthorized songs, Napster still had made dra-
matic progress. Over the objection of some of his advisers, Middelhoff
was preparing to take a giant legal risk — that the system was so good that
he could get away with letting consumers offer any songs they wanted,
just like in the early days, as long as it got through a filter comparing the
music to a database of copyright-protected songs.
If a record company complained that an unapproved song had gotten
through, Bertelsmann's Napster would simply remove it —even though it

already might have been downloaded by others. Given Napster's history

in court, it was a virtual certainty that when such a song got onto the

system, the copyright owner would not just ask nicely for it to be pulled.

The offended party would sue the company all over again, and this time
Bertelsmann's money would be at stake.

Middelhoff was convinced that the Napster acquisition would make

good on his pledge to turn BMG into the top music company on the

planet, and he intended to spread the technology to books and videos as

weU. But as the summer of 2002 rolled around, the time for such grand
visions AOL Time Warner merger had proved a disaster,
was fading. The
and AOL shares had fallen 70 percent. First AOL chief operating officer

all the rave (301)

Gerald Levin, then co-CEO Bob Pittman, resigned. Then the board of

Vivendi Universal, a French water company that had swallowed Edgar

Bronfman's Universal music and movie company, grew sick of CEO Jean-
Marie Messier's overreaching ambition and fired him as well. The old

guards were everywhere resurgent.

At Bertelsmann, Middelhoff had been pushing a historically conser-

vative company in more and more new directions, many of them via more
than $5 billion in acquisitions. Bertelsmann, thanks to Middelhoff the
world's fifth-largest media company, was used to treating its various hold-

ings as independent firms responsible for generating profit. Middelhoff

was centralizing, planning to sell off traditional holdings, and willing to

make quick gambles. And now he was pressing for the controlling Mohn
family to give up more of its stake than it wanted in Bertelsmann's

planned initial public stock offering. The Mohn family didn't like where

he was going, and Napster was one of the most obvious problems they
had: They didn't see how it could make any money.
After a six-week buildup in tensions, the Bertelsmann board dismissed
Middelhoff at the end of July. His replacement was fifty-nine-year-old
Gunther Thielen, a twenty-year veteran from Bertelsmann's printing arm,
the company's oldest. Thielen ordered a review of the company's busi-

nesses and planned to reduce Bertelsmann's debts, focus on profitability,

and withdraw from some of its Internet sales efforts.

None of that sounded good for Napster, and Konrad Hilbers quickly
grew nervous. With Napster champion Middelhoff gone, "that left me
with Joel Klein as the most prominent and highest-ranking contact part-

ner at Bertelsmann. Then two or three days later Joel Klein was leaving,

which left me with Klaus Eierhoff, the head of the Direct Group. Then
a week later, Klaus Eierhoff was leaving," Hilbers complained. As the

press began predicting that Bertelsmann would no longer want anything

to do with Napster, Hilbers called Eierhoff 's successor and was told to
wait and see.

It was stiU better to have a reluctant buyer than no buyer at aU, which
is what Hilbers and Shawn feared would be the case if the Bertelsmann

deal didn't go through. Bertelsmann was contractually obligated to con-

summate the purchase — if what had grown to a $9 million cash outlay

was approved by Delaware U.S. bankruptcy judge Peter Walsh by the

( 302 ) JOSEPH MENN

September 3 deadline. The record labels and the music publishers fought
the deal and won access to Napster and Bertelsmann documents and the
right to conduct depositions of Hilbers, Lyn Jensen, and Bertelsmann's
Bill Sorenson.
The music companies argued that Bertelsmann hadn't acted like a

regular lender when it first gave Napster money, but as a disguised equity
investor. In bankruptcy law, the distinction is critical. If Bertelsmann was
really a secured lender, than it could count its $85 million in loans and
have a giant head start on any other bidder for Napster's remains. If it was
an equity investor, then the value of its holdings would be virtually wiped
out alongside those of Hummer Winblad and the Fannings, and everyone
would start from the same place in the bidding.
The allegations were somewhat unusual, and Napster accused the
labels of vindictively trying to destroy what was left of the crippled com-
pany. Few expected the music industry's arguments to sway the judge. But
once discovery got under way, the industry's lawyers turned up a raft of
evidence that Bertelsmann's relationship with Napster was far different
from that of a normal creditor. To begin with, Jensen testified that she
couldn't get a bank loan at any interest rate before Bertelsmann stepped
in. Bertelsmann not only made a massive loan, they did it at the remark-
ably low rate of 6.1 percent —more than three percentage points below
the prime rate. And when Napster failed to make its payment, Bertels-
mann did nothing more than send a letter complaining. The evidence
also showed that Bertelsmann was thinking from the beginning that a
bankruptcy would turn its low-risk loan into ownership.
More seriously, there was the matter of management control. Hilbers

may have acted to the outside world like an independent thinker, but his
e-mail was littered with direct orders from Middelhoff, his former boss,
who had given Hilbers permission to take the Napster job in the first

place. Then there were the internal documents, especially the Middelhofi^
memo from 2000, suggesting Bertelsmann knew that Napster users were
breaking the law. And despite the claims that the $60 million in initial

fimding was going toward the development of a legally sound system,

Bertelsmann executive Bill Sorenson conceded in his deposition that
much of it was used for regular operating expenses during the eight

months that the old Napster was around. Not only that, but Bertelsmann

all the rave (303)

executives had written that they should keep the old service open so that
they had the biggest potential audience when the system converted to a

legitimate structure.

"Bertelsmann knew the money was being used to continue to run the
infringing service until the legal service could be developed," music pub-

lishers' lawyer Andrew Rosenberg argued at a showdown hearing that

began before the Labor Day weekend and concluded on the very day of

Bertelsmann's deadline. Speaking for some of the record labels, attorney

David Stratton went even further: Bertelsmann had such control of
Napster, he said, that the labels were considering suing Bertelsmann

itself "This is not just about the bankruptcy. Bertelsmann has some real
exposure here," said a third attorney familiar with the labels' thinking.

Record executives confided that they were indeed weighing a suit, and
lawyers in the case said it was more likely than not. The case would be
similar to the never-completed claim against Napster, that it knew about
the infringement and had contributed to it. The prospect made Bertels-

mann's new leadership nervous: a now- wasted $85 million was bad; a

potential biUion-dollar liability was a whole new ball game. The other
labels' three-year quest to find someone to pay for the Napster piracy

might end with one of their own kind.

Judge Walsh assumed that if he ruled against the asset sale, Napster
would be liquidated, with less money going to the creditors than they

would have gotten from Bertelsmann. But the facts were so egregious
that he had no choice. There were a number of sufficient grounds to rule

as he did, Walsh said, but he cited just one — that Napster hadn't met its

burden of showing that its negotiations with Bertelsmann had been at

arm's length and in good faith. "It seems abundantly clear that Mr.
Hilbers had one foot in the Napster camp and one foot in the Bertels-

mann camp, and was so fiindamentally conflicted that I believe that the

transaction was tainted," Walsh said from the bench. "His contacts with
Bertelsmann, I think, are just so significant."

Hours after Walsh ruled against the Bertelsmann purchase, with no

more interim financing available for the skeleton crew's salaries, Napster
said it planned to liquidate. "Without the engineers who created it, Nap-
ster would have no value," Hilbers said. He fired everyone but Jensen and

( 304 ) JOSEPH MENN

resigned. Shawn, Aydar, and the others cleared out their desks. "It's

officially over," Aydar said. "We're picking up our last paychecks." Yet
even now, the reports of Napster's demise were exaggerated. A committee
of unsecured creditors, including David Boies's firm, had tried in August
to drum up rival bidders against Bertelsmann. They had failed in part

because of Bertelsmann's claimed $85 million head start. With that

advantage gone, the creditors tried some more. This time, a dozen firms
were interested. Walsh was impressed enough that he allowed Napster to
avoid liquidation for four more weeks. Shawn Fanning tried to raise

enough money to make his own bid, but fell short.

John Fanning told others that he had arranged for $10 million to
fiind another takeover effort. But rather than bid in the court-approved

procedure and try to walk ofi"with the technology and brand alone. Fan-
ning thought he could take away something even more valuable —the
right to sue other people on Napster's behalf He gathered together his
old allies from the spring coup attempt, asking the Series A and common
shareholders to reelect him a director of Napster. Since no one else was
still on the Napster board, he planned to ask the judge for control, cut his

own deal with the creditors, and sue Bertelsmann, Hummer Winblad, or
both. (The gambit was an obvious long shot, since Napster's hands

weren't clean.) Over the last weekend in September, just before the bank-
ruptcy judge was to appoint a trustee to handle a sale to the top bidder,
he came within a few votes and sent an angry e-mail to those who hadn't
given their consent. "Needless to say, after raising 200k in DIP [debtor-
in-possession] financing, 1 million in Bridge Financing, and 10 million in

permanent financing in order to turn Napster Inc. around and not getting
the opportunity to do just that, I am disappointed in the failure and
inability of this group of shareholders to act, in what would otherwise
seem clearly to be there [sic] own best interests. John."

Judge Walsh appointed an impartial trustee to dispose of Napster's

assets, and the trustee began negotiating with the top bidder for Napster's

brand, technology, and website. In November 2002, that bidder was

revealed as Roxio Inc., which was offering $5 million in cash, $200,000 in
temporary financing, and warrants for 100,000 Roxio shares. A Silicon

Valley spinoff of data storage firm Adaptec Inc., Roxio made the leading

all the rave ( 305 )

software for creating CDs from MP3s or encrypted digital music files.

Roxio code shipped inside tens of millions of Microsoft-based PCs, and

it came with the Pressplay online service from the major record labels.

Roxio CEO Chris Gorog, a former Disney and Universal Studios execu-
tive, wasn't sure what he would do with Napster. Roxio had good relations

with the record industry, but it had warned in an SEC filing that if free

digital music declined under legal pressure, sales of its software could fall.

The biggest factor behind Roxio's bid was the recent moves by the labels

to make more content available online and allow more of it to be burned

to CDs. The biggest questions were whether the second-generation Nap-

ster system could be made to distribute songs with restrictions on their

use, if the labels would license content that way, and if consumers would
accept whatever the resulting terms were.
But the value of the brand alone was still "absolutely monstrous"

nearly eighteen months after Napster's shutdown, Gorog said. In one

study by Roxio, 97 percent of those surveyed had heard of Napster, more
than Yahoo or Amazon. Gorog thought he could start with a client-
server Napster, reviving the site in a far smaller and more controlled way,
while continuing to analyze the peer-to-peer Napster II. If everything

went right, Roxio would find the middle road that had eluded everyone
else, satisfying both the labels and consumers. The night before he
announced Roxio's intentions, Gorog sought validation from the ultimate
proxy for the public's desires, reaching Shawn Fanning on his cell phone.
If a now independent Shawn stiU wanted "free music for the people," as

Judge Patel had put it, there would be no deal with the generational icon.

If Shawn's remaining vision was about the "celestial jukebox," where vir-

tually everything was available for a modest fee, than anything was possi-
ble. "One teenager not only revolutionized the way music wiU be
distributed, but also movies and the spoken word," Gorog said. "What-
ever we do will flow from that philosophy." Both sides came away
impressed by the phone call and a follow-up visit to Roxio's Santa Clara
headquarters, and Shawn promised to think about helping Roxio. "I'd be

very surprised if this didn't result in a very positive relationship," Gorog

said. "He's a brilliant kid, obviously, but I was very impressed with his

speech — he's a pretty sophisticated guy. He's learned the ways of the
world much faster than he intended to."

( 306 ) JOSEPH MENN

 In court, John Fanning tried to stop the sale to Roxio, and his lawyers
argued in a fiUng that their client was the "reputed owner" of some of
the assets at stake, including the unused Napster.net domain name and
Napster's cat-head logo. Two days before the final hearing. Fanning filed
his own, more emphatic objection, one that no lawyer signed. In it, he
said that he had never transferred the ownership of Napster.net or even
Napster.com to the company when he incorporated Napster Inc. in 1999
and that he "never received any consideration from Napster in return for

the purported assignment of his property interests in the intellectual

property." Fanning also maintained that he had never signed an asset-

transfer agreement to secure Hummer Winblad's investment the following
year. Instead, he asserted, an older signature page had been substituted
without his approval. "Mr. Fanning remains the rightfiil owner of the
domain names," he wrote. Since Napster's trustee couldn't prove the com-
pany owned the assets in question. Fanning argued, the court couldn't
very weU sell them off.

At the November 27 hearing five days after Shawn turned twenty-

two, Fanning didn't appear in court to testify in support of his claims,
instead sending in another new lawyer. An unimpressed Judge Walsh
overruled Fanning's objection and approved the sale to Roxio. Later that
afternoon, the deal closed. The Napster technology went off to an uncer-

tain fiiture, and Napster the company belonged to history.

all the rave ( 307 )

 Epilogue :

After the Revolution

FROM THE TIME OF THE BANKRUPTCY FILING, EVEN SHAWN

Fanning suspected that Napster could never again be what it was. Napster

had begotten Gnutella. Gnutella had begotten Kazaa, and Grokster, and
MusicCity, an interlocking network of decentralized peer-to-peer file-

sharing systems. By 2002 those services were almost as easy to use as

Napster was, had as many users as Napster did at its peak, and were far

harder to shut down, though the record and movie industries were trying
through a lawsuit in Los Angeles. Because many countries didn't recog-
nize the concept of contributory copyright infringement, Kazaa and its

ilk looked unstoppable, even with the Napster precedent. Once tapped
into one of those systems, users could trade not only music but also

movies, pirated software, and almost anything else digital. The systems

had their drawbacks as well. Some distributed invasive pop-up ads and
viruses. And their users were not just college kids looking for music. The
website GnutellaMeter, which tracks search terms on that network in
fifty- minute intervals, reported that the top thirty terms in one sweep

included valuable software Windows XP and Office XP; new movies

Harry Potter and American Pie 2; and the discomfiting porn terms
"Lolita," "rape," and "preteen." There wasn't a song title or rock-group

name in the bunch. More than 1.8 billion files were being transferred
monthly on the three biggest post-Gnutella networks, and Morpheus had
been downloaded 89 million times by May 2002.

( 309 )
 MusicNet and Pressplay, the label-sponsored online music services,

launched at the end of 2001 and included so many restrictions, including

prohibitions on copying all but a handful of the files onto CDs, that they
were quickly seen as failures: MusicNet attracted only forty thousand

subscribers in its first four months. The major question was only whether

their failure was accidental or deliberate, an empty gesture to Congress

and the courts meant to show that the record industry was at least trying.

Little by little, the labels offered more: Universal, in the biggest move,

offered one thousand older albums in the unrestricted MPS format

through its subsidiary EMusic for as little as $10 a month. It said it

would release far more through Liquid Audio, one of the many struggling
firms that had obeyed the law but had been spurned by the big labels

when they sought licenses. Other labels offered locked versions of a few
songs over the pirate services, giving consumers an easy way to pay if they

wanted to go legit.

But the labels also got nastier on other fronts. They seeded the

unchecked pirate networks with fake MP3s from Eminem's latest CD,
hoping to frustrate surfers to the point that they would open their wallets.

And they hinted for the first time that they might sue consumers who
posted the largest number of unauthorized tracks.
The record industry blamed the piracy explosion for a 5 percent fall

in worldwide music sales during 2001, the worst drop-off since the intro-
duction of the CD in 1983. Sales of blank CDs topped those of recorded
CDs. And it was obvious that no amount of litigation would kill the

hydra. "I fear we're getting into a game of Whack-a-Mole," one label

executive said. In the nationally televised 2002 Grammy Awards,

National Academy of Recording Arts and Sciences president Michael
Greene took time out from the congratulations and gyrations to deliver a

fiery condemnation of what he called "the most insidious virus" of unau-

thorized downloading. Greene called for a better effort to educate music
fans about how they were hurting artists and stronger "leadership from
Washington."
Greene's own efforts at leadership and education, which were met
with scattered hoots amid the applause, could have been improved in
their timing and attention to accuracy: His speech came immediately
after he had bestowed a lifetime achievement award on bribe-taking disc

( 310 ) JOSEPH MENN

jockey Alan Freed. And he trotted out three young people from back-
stage, saying they were students who had managed to download nearly six

thousand songs in two days from "easily accessible websites." It later

emerged that one of the three was a technology professional, not a stu-

dent, and that most of the songs had come directly from friends via
instant messages. If those songs had come from purchased CDs, they
might well have been sent legally. (Greene himself was forced to resign
after the academy paid a reported $650,000 to head off a former execu-
tive's threatened sex-harassment suit.)

Allied with the more powerful and increasingly nervous movie indus-

try, the record executives returned to Congress with their own demands.
Before, Napster's army of users had helped the upstart get a warm recep-
tion on Capitol Hill, where Sen. Orrin Hatch had threatened the industry
with legislation if it didn't open its digital vaults. As the courts discredited
Napster and Hatch lost his committee chairmanship, nothing serious
passed Congress. Now the momentum was reversing in a post-Napster

backlash. As the threat to all manner of intellectual property rose, the

entertainment companies experimented with new encryption techniques,

including some that prevented legally purchased CDs from being ripped
at all —even though ripping itself had been determined to be legal. Rep.

Howard Berman of Los Angeles, a Democrat, went so far as to introduce

a bill to allow entertainment companies to hack into consumer PCs and
delete copyright-infringing files offered on peer-to-peer networks. Even
if such a bill made it out of Congress, it was hard to see the wisdom of
declaring war on hackers, instead of offering more cheap content to stim-

ulate demand.
Soon came the spectacle of two of the country's most powerfiil indus-
tries, entertainment and technology, colliding head-on. Disney CEO
Michael Eisner testified in Congress, attacking Silicon Valley for profit-
ing from piracy-driven demand for better and faster machines and con-
nections. "There are people in the tech industry," Eisner charged
ominously, "who believe that piracy is the killer app for their business."

Intel CEO Craig Barrett returned the fire, telling legislators that such
restrictions on equipment would stifle innovation and prevent legitimate
activity. "Peer-to-peer technologies constitute a basic fianctionality of the
computing environment today," Barrett and Microsoft CEO Steve

all the rave ( 311 )

Ballmer protested in a letter to entertainment CEOs that was also signed

by the CEOs of IBM and Dell Computer Corp.

Sen. Fritz Rollings, a Democrat, introduced a bill that would force

government-approved anticopying mechanisms on technology companies

if they couldn't work out something amicable in the following eighteen

months. The initial prospects for the biU and its ilk were poor, but the cli-

mate in Washington was clearly turning less hospitable for the technolo-

gists. The feud even slowed progress toward digital-television broadcasts,

since the content side feared that copying would explode as broadband
connections spread.
"Hollywood and Silicon Valley, it's like Israelis and Palestinians," said

Napster director John Hummer. "The two groups will never see the world

the same. It's a fight between content and distribution, and in the end I

think distribution always wins." Now in a defensive posture, Silicon Val-

ley tried to rally the public with such groups as DigitalConsumer.org,

founded by Joe BCraus and Graham Spencer. The group's website pro-

posed a technology consumer's Bill of Rights, which included the rights

to fair use and to make copies for personal consumption on different

machines. The site described Spencer and Kraus as cofounders of the

Kleiner Perkins-backed Web portal Excite Inc. It didn't mention that

they had also invested a combined $200,000 in Napster.
As the political balance of power shifted, the tech community divided
against itself Some looked for ways to cut the best deal with the enemy
in Hollywood. Microsoft moved to the front, announcing plans to
develop a new type of operating system, dubbed Palladium, that would
keep content in a sort of secure vault. Secure, that is, from the computer's
owner: "trusted third parties" — a movie studio, for instance —could agree

to lend a video on condition that it get free rein to snoop inside and make
sure everything there was paid for. (The industry already had a hot that

searched for unauthorized movies, called Ranger.) The Berman bill would
give entertainment companies virtual immunity for any legitimate con-
tent they damaged along the way. As hearings on the bill began, the

music industry and its allies sponsored an ad campaign in which perform-

ers from Britney Spears to Luciano Pavarotti condemned file-sharing.

Digital-rights management efforts at Microsoft and elsewhere like-

wise devolved into a contest to give the most control to the entertainment

( 312 ) DOSEPH MENN

companies. Listen to this song once, keep it for two days, and away it

goes. Traditional fair use, such as making a copy of a purchased CD, was
quietly heading for an early grave. Microsoft even slipped into its Media
Player licensing terms the right to disable unapproved content or rival
programs, such as peer-to-peer systems, on users' computers. Microsoft's
monopoly power ensured that its restrictive Media Player would be
widely adopted, but just to be on the safe side, exclusive songs by Peter
Gabriel and Elvis Costello in the format forced downloaders to accept
the new technology. "I was looking at their new innovation, and I was
very much impressed," said Jack Valenti of the Motion Picture Associa-
tion, after making his first visit to Microsoft's Redmond headquarters in
August 2002.
With the benefit of having watching the Napster drama unfold and

powerfiil allies in both Washington, D.C., and Washington State, the

movie companies had a much better shot than the record labels at

handling the crisis correctly. But they, too, were showing early signs of
blowing it. They put little digitally protected content online and dictated
new usage terms that were likely to annoy their customers. (In an echo of
Napster's antirust claims against MusicNet and Pressplay, authorized

online movie provider Intertainer Inc. sued three big studios for conspir-

ing to drive it out of business after they set up a rival joint venture. And
just like it had with the major labels' ventures, the Justice Department
opened an antitrust investigation.) The pirate services, which learned the
Napster lessons better, were providing an easy way to empower customers
who chose to express their dissatisfaction. Because broadband connec-
tions are spreading slowly, the entertainment giants have a few years to
get their answer right. In the meantime, their foot-dragging is giving
people less incentive to pay for high-speed access, according to the U.S.

Department of Commerce. And the broadband delay, concluded the

Brookings Institution, is in turn costing the sputtering national economy
an estimated $500 billion a year in lost gross domestic product.

Silicon Valley remained full of believers in peer-to-peer. The Nap-

ster revolution came late in the cycle of the Internet boom and continued
even after the NASDAQ_began shedding points almost as rapidly as it

all the rave (313)

had gained them. Some experts even believed for a time that peer-to-peer

technologies would be the savior of Net companies and their investors.

That proved overly optimistic. But the Valley did invest in more than one
hundred peer-to-peer start-ups, and such companies as IBM, Sun
Microsystems, and Intel began researching and funding new^ efforts. The

increased public awareness of the technology also helped bring attention

to preexisting systems that basked in Napster's aura. The beneficiaries

included attempts at what technologists called "distributed computing,"

the use of many small, individual processors to accomplish collectively

what even supercomputers can't. Though the process was not necessarily

peer-to-peer as most defined that term, the distributed-computing

campaign gained momentum from the Napster phenomenon.
Perhaps the best-known instance of a wide public contribution to dis-
tributed computing was SETI@home, an offshoot of the long-running
SETI project, the search for extraterrestrial intelligence. The project

analyzes incoming signals from space, looking for patterns that might

indicate other life. By early 2000, more than 1.6 million people in 224
countries had downloaded the program to crunch signal data on their

PCs when their computers weren't otherwise in use. Other distributed-

computing efforts allowed average computer users to volunteer their
machines to help in cancer research and for a range of other charitable
tasks.

Another recipient of Napster-fueled attention was FreeNet, a decen-

tralized information- sharing system first described by Irishman Ian

Clarke in a thesis completed in June 1999, when fewer than a thousand

people knew about Napster. Clarke's goal was to defeat censorship by

protecting anonymity. Some people used FreeNet for music, but it was
optimized for text. Like Gnutella, FreeNet had no central index or con-
trol: Clarke said that even if someone held a gun to his head, there was no
way he could disable the system. And Clarke's system avoided Gnutella's

early problem with scaling to a massive size. While Gnutella forwarded

requests for data to servers at random, which then forwarded those
requests until traffic snarled, FreeNet's machines made educated guesses

about which computers would be most responsive. Everyone who partic-

ipated in the system was guaranteed anonymity in exchange for agreeing

to store on his or her own computer whatever the system put there. By

( 314 ) JOSEPH MENN

2002, more than 1 million people had downloaded the FreeNet software,
including dissidents in China. Clarke moved on to found a Santa Mon-
ica firm called Uprizer Inc., which hoped to use similar architecture to

save companies money. The idea was that by distributing information

throughout a big company's personal computers, the firm could cut
down on expensive storage and server space. Intel and others invested
$4 million.
Others that saw the benefits included the U.S. Army, where the tech-
nical director of the Simulation, Training, and Instrumentation Com-
mand realized that equipping soldiers with small machines that spoke to
each other removed the danger of depending on a big server that was a
central point of failure. "This is serious research," said the official,

Michael Macedonia. "You don't want to put all your data on one server
because once you take that server out, then you've got a lot of blind
people with a lot of useless electronics."
In civihan life, the giants were moving, too, albeit slowly. Intel was
among the fastest, moving its internal chip-development efforts and a
training system to a peer-to-peer network that took advantage of unused

computer time. In two years, the moves upped the rate of Intel's com-
puter utilization from 50 percent to 90 percent, according to Chief Tech-
nology Officer Patrick Gelsinger, and saved Intel close to $1 billion.

"Napster became a lightning rod, this uniformly sensible inflection point

for the industry," Gelsinger said. "Peer-to-peer is to some degree a fad

that labels a bigger and longer-term trend. Peer-to-peer, grid computing,

and Web services are all part of a march toward distributed computing."

By late 2002, more than half of the employees who responded to a

Comdex poll said their firms either were using peer-to-peer or planned to
within a year. While the VC fever for peer-to-peer companies wore off" in

six months, real companies are saving real money with it. Drug firm

Glaxo SmithlCline uses Groove Networks Inc. to help employees collabo-

rate on online documents. Big law firm Baker & McKenzie uses

NextPage Inc. to skip most centralized repositories and speed the hunt
for documents. The applications will keep changing, but their general use

will increase over time until it becomes standard. "Peer-to-peer is not an

invention. It's more of an approach," said Uprizer's Clarke, twenty-five.

All the attention and money that followed Napster into the sector "cre-

all the rave ( 315 )

ated an opportunity for people with credible ideas to explore those ideas.
We'U see which of those wiU bear fruit."

Most of the original revolutionaries weren't around to see what

followed them.
Eileen Richardson, the first of the Napster leaders to go, was
exhausted and ready to move on in mid-2000, when Hummer Winblad
came in. She wasn't prepared for what came next. Three months after her

departure, on the heels of the preliminary injunction and its temporary

stay. Business Week ran a long cover story on Napster that can most chari-

tably be described as revisionist history. Largely reflecting the viewpoints

of John Fanning and an unnamed former executive who sounds a lot like

the terminated Bill Bales, the article made numerous errors. It said Sean
Parker had "helped write" the beta version of Napster. It said that John
Fanning had called Wilson Sonsini's Andrew Bridges about copyright
law early on and that "those conversations" had given Fanning confidence
in Napster's chances in court. In fact, Bridges had declined to represent

Napster: He had only explained his arguments in the record-industry suit

over the Rio portable MPS player. For advice on Napster, Bridges had
referred Fanning to another lawyer, who had referred Fanning to Seth

Greenstein, of a lesser-known firm in Washington. BusinessWeek cited

unnamed sources who reported that Richardson had been heard "scream-
ing into the phone" at record-company executives, when in fact her only

phone conversations had been with litigious RIAA officials.

Most devastating to Richardson's reputation was what passed in the

article for expert opinion on what had gone wrong. It said she was "com-

bative, inexperienced, and unable to develop a business model palatable to

the record industry." It said Richardson had rejected venture-capital offers

in 1999 and was able to secure fianding only in May 2000, by implication
because of Richardson's unexplained failure to articulate a business model.
In fact, any plans about how to profit would have been pounced on by
record-industry lawyers as proof of Napster's gain from illegal activity.

John Fanning, on the other hand, was depicted as Napster's dedicated

"chief business strategist," one whose only obvious error, besides relying

( 316 ) JOSEPH MENN

on overoptimistic legal counsel, was picking the wrong person as CEO.
The article failed to mention that Fanning had vetoed earlier potential

CEOs alarmed at the size of his stake, driven away more substantive and
larger venture offers, overruled many of Richardson's softer approaches to

the industry, including the New Artist Program and the Gigabeat
alliance, and generally been the one piloting Napster and his nephew into
increasingly certain oblivion.

Worst of aU was one simple, and false, declarative sentence: "Richard-

son declined to comment." She had never been reached to defend herself
The lead writer on the story had sent e-mail to her old company address,

[email protected], an inquiry that Richardson didn't receive. No

reporter had bothered calling directory assistance for her home number in
Palo Alto. To have her reputation savaged when she never had fuU control
of the company was nearly more than Richardson could take. "To see the
dream of these kids be undone by one greedy bastard, then have her repu-
tation dragged through the mud, it was an unbelievable thing to have to

go through," said Xtime's former CEO and current chairman, John Lee,
who is still close to his former girlfriend. "If she could have given every-

thing to the company and made no money, but had the kids be made
whole, she would have done it in a heartbeat."

Richardson wrote an anguished e-mail to Amram that she never sent.

"As much as I suspected one day I would be pegged as the scapegoat for
Napster," she wrote, "I wasn't able to quit when I learned of all the prob-

lems at the company. I had said I'd get a job done, and by God I was
going to do it. Also, there was no one to turn the company over to.

Shawn, John Fanning, BiU Bales? After all the very reason I was CEO
was because no one would back anyone else. ... I know none of you have
control over John Fanning and BiU Bales, so there is no blame to anyone
at Napster at aU. It is a situation I got myself in and there are conse-
quences that I also now have to live with. My career may have ended this
past weekend. ... In my heart and soul I know I gave everything I had to

help two bright-eyed, inexperienced teenagers get closer to their dream.

And at the end of the day, this is all that matters really, to me anyway. I

always said running Napster with aU its press and lawsuits was dwarfed by
the challenge of working with John Fanning."

all the rave ( 317 )

 Richardson took several months off to recuperate from Napster and
the media attack. In late 2001, she reemerged with a Web-services start-

up called Infravio Inc. Xtime was one of its first customers.

While stiU personally wealthy, the third original Napster director's

business had taken a turn for the worse as well. Yosi Amram's VaUCert,
which went pubHc in July 2000 in a $40 million IPO, had seen its stock

fall from more than $27 to less than 50 cents in the Internet downdraft.

In 2001, VahCert lost more than $28 million. It had enough current
assets to last one more year; as 2002 drew to a close, Amram resigned.

BiU Bales's Flycode vanished altogether, and so did he. He and his

girlfriend. Holly Shin, who had followed Bales from Napster to Flycode,
were evicted from their San Mateo apartment in December 2001 for fail-

ing to pay their $2,000 monthly rent. Bales moved back to his home state

of Georgia.
Jordan Ritter's first stop after Napster, private-financing system

Roundl, began to sputter, too. He left and founded a spam-filtering

start-up called Cloudmark Inc., serving as its first CEO and successfiiUy
raising early handing. The firm's SpamNet peer-to-peer system reUed on

users to flag annoying e-mail as spam: If enough others voted the same
way, the e-mail was blocked from reaching more subscribers. StiU in beta,
it had 173,000 participants by November 2002. Ritter and Jessie Garrehy
planned to be married in February 2003.
Sean Parker may have been the hardest hit of all those who left. For
six months, he remained obsessed with Napster, refiving the experience by
writing a book proposal. Failing to sell the book, Parker consulted at Sun
Microsystems and other companies, looking for a way to redeem himself
In 2001, he founded a company called Plaxo Inc. The next year, Plaxo

released software that allows users to distribute contact information for

themselves, building a mass network. Like Ritter, Parker worked on the

project in a brutal financing environment. "Everything I did early on, I

wouldn't have known to do were it not for the terrible things at Napster.
You have to scrutinize every single hire. You have to have the right bal-

ance of power between the company and its investors," Parker said. "They
say you learn the most from your mistakes, and Napster made every mis-
take in the book." He eventually won fiinding from Sequoia Capital Part-
ners, a top Silicon Valley venture firm.

( 318 ) JOSEPH MENN

 Better Sequoia Capital than Hummer Winblad: That firm was doing
terribly, even by the washout standards of post-bust Sand Hill Road. Of
the $318 million raised by Hummer for its fourth fund in 1999, $297
miUion had been invested by the end of 2001. The fund had realized only
$5 million in gains and had $58 million left in residual value by then,
according to InsiderVC.com publisher Steve Lisson. That jaw-dropping
-80 percent return compared with +20 percent for a Sequoia fund, -20
percent for an Accel Partners fund, and -30 percent for a Foundation
Capital fund all raised the same year. "Hummer IV is pure toxic waste,"
Lisson said.

John Fanning, on the other hand, accomplished a lot of what he had

set out to do.
In the fall of 2000, he pitched investors in a bid to raise $50 million
for new companies through his incubator, NetCapital, which was sup-
porting the old online games firm and NetMovies, the video start-up. A
draft of Fanning's presentation said that NetCapital was looking for peer-

to-peer companies with viral marketing and that Napster showed Net-
Capital's "fundamentally value-driven approach." Napster did so well, the

document crowed, because of how Shawn had been cynically marketed by

the real powers at the company. "Creating a media-friendly 'Cinderella'
story around a 19-year-old programmer and propagating a viral market-
ing strategy targeting early adopters allowed the business to grow very
quickly with limited investment," it said. The presentation said that Net-
Capital's team, including founder and chairman John Fanning, CEO
Martin Kay, and marketing chief Tom Carmody, were contributing their

holdings to the portfolio. Among those holdings were $5.4 million worth
of Napster stock, $300,000 worth of stock in AppleSoup (by then named
Flycode), and $700,000 worth of stock in ON24.
By early 2001, NetCapital apparently had succeeded in raising $2

million, according to entertainment lawyer Howard Altholtz, who served

briefly as a company vice president. Fanning's old habits still created

problems, as Altholtz's experience showed. Fanning met Altholtz in mid-

2000 and offered him a job as vice president for business and legal affairs.

When Altholtz mentioned competing offers, he said. Fanning asked him,

all the rave ( 319 )

"What will it take to get you to join NetCapital —does $250,000 sound
right?" Altholtz negotiated a term sheet with Fanning and CEO Kay, and

all three men signed it. In addition to the salary, the deal called for a

$15,000 signing bonus and six months' severance pay if Altholtz were

fired without cause, according to a copy of the term sheet.

The August day after Altholtz started work. Fanning met him on
Nantasket Beach and handed him the $15,000 — a check signed by
Fanning's wife and drawn from a personal account. According to a
breach-of-contract lawsuit Altholtz filed in January 2001, Fanning told
him "that he had a lot of personal legal problems and that he wanted
[Altholtz] to handle his personal legal matters." Fanning had reaped hun-

dreds of thousands of dollars selling Napster shares. But in the collection

cases that had gone to judgment, he owed at least $17,529 for credit-card
lending by First USA Bank and $26,759 to Creditrust (though those

creditors would have to refile the cases after Fanning objected that he had
never been properly served).
Altholtz refiised on the grounds that he had been hired to work as a

business executive. He continued to work at NetCapital but never

received any salary: According to the suit, Kay told Altholtz that he

would be paid as soon as NetCapital won funding. After a month with no

paycheck, Altholtz stopped work, demanded his six months' severance,
and eventually filed suit. NetCapital claimed it had never made Altholtz a
formal offer, and the case was settled for an undisclosed sum in 2002.
NetCapital and NetMovies are housed together behind grimy glass
on an oceanfront street in HuU, sharing a block with restaurants that are
closed except for weekends, closed except for summers, or just plain

closed. Sitting nearby are an old carousel and an arcade from Hull's better
days. NetCapital's front door stays locked during business hours, and
employees there had ushered away people bearing legal papers. When I

knocked in the spring of 2002 and introduced myself to Fanning, he

shook his head, gave a half-smile, and shut the door without a word. A
few days later, his public-relations woman called me. "He doesn't need a
publicist," she said. "He needs a shrink."

If her opinion was based on Fanning's reluctance to follow social

norms, she had more information than most of the public. The media had
been timid, and Shawn had yet to fault his uncle for anything publicly.

( 320 ) 30SEPH MENN

Richardson also stayed quiet. The only negative press Fanning received by
early 2003 were articles in the now-deflinct Industry Standard, which
Fanning threatened to sue for libel, and the Los Angeles Times. In August
2002, John Fanning fulfilled another long-held dream, to grace the cover
of a business magazine. Red Herring trumpeted NetMovies' plan, by then
one of many by technology firms, to distribute film content online — if it

could get licenses from movie studios. The magazine bore the cover line
"The Next Movie Mogul?" and said that Blockbuster Inc. had led a $4.8
million investment round in NetMovies, though the video-rental giant

wouldn't divulge how much it had put in. The article said Fanning had
"created" and "masterminded" Napster and was trying to shepherd a

political solution to the music-licensing problem in his spare time. "This

political activity could well be his greatest legacy," the story intoned.
The 1999-style hype notwithstanding, Fanning's firm needed more
money than it had. Much of Fanning's Napster windfall had gone to pay
lawyers, and NetCapital grew late in paying some biUs, a creditor said. At
least in part, Fanning blamed, of all people, Thomas Middelhoff, who Fan-
ning believed would help NetMovies. "In July of 2001 we met to discuss

partnering with us in the online movie deal with Blockbuster," Fanning

reminded Middelhoff in an e-mail complaining that the then-CEO wasn't
returning Fanning's calls. "[Eight] months later we are stiU having discus-

sions and my relationship with Blockbuster has suffered because of it."

Shawn was livid when the Red Herring story came out. But even
then, and even soon after, as Napster was at last melting down around
him, he tried to tune out the drama. It was the one habit that most frus-

trated his longtime friends Parker and Ritter, all the way back to Shawn's

acceptance of the 70/30 split. "John Fanning believes in the ascendancy of

will," Parker said. "Shawn is the polar opposite. He thinks there's an angel

on his shoulder, that everything will work out for the best. And this belief

in the predestination of what was happening engendered passivity that

paralyzed Napster."
But Shawn had changed in many ways, becoming more jaded about
the business world and the motives and methods of the people running it.

A healthy effect of that process was that he paid more attention to the

all the rave ( 321 )

rest of his life. He dated more. He actually took vacations. He looked
after his teenage half brother, Raymond Verrier Jr., who had problems
back on Cape Cod. Shawn had matured so much that his mother signed
custody of the youngster over to him. And as another part of his new
attention to loved ones, Shawn kept up the four-year-old relationship he

had developed with his biological father, Joe Rando. Rando was amazed
that the fame hadn't affected his son, other than to make him more
polished. "I'm completely impressed with Shawn, but not because of the
public reasons —because of the person he is," Rando said. "It didn't go to
his head, which is pretty amazing."

Late in 2001, Shawn returned to playing with computer-security

issues, the things that had interested him as a young hacker. He discov-

ered a probable vulnerability in AOL Instant Messenger, the most popu-

lar instant-messaging system in the world. Believing the discovery might
bring the wrong sort of attention to Napster, Shawn quietly passed the tip

along to Matt Conover, the founder of Shawn's old hacking group,

wOOwOO. "I don't mind the fact that I can't talk about it on a wide scale,"

Shawn said. "I just really do enjoy the process of securing things and
finding security problems." Conover analyzed the AOL hole and made
national news by writing and releasing the code to exploit it, parlaying

the find into a security job in Silicon Valley.

Well before the end of Napster, Shawn was thinking about what
might come next, about finding something that would keep him from
being remembered as a one-hit wonder. "Technically, I understand Win-
dows programming, and I learned a lot about architectures. And I'm not

bored with computers, but in terms of some of the basic computing con-
cepts and networking and some of those things, I feel Hke I'm at the point

where if I want to build something, I know I can build it or find the right

people to build it. I've been able to meet so many talented engineers that
technology-wise, I'm realty comfortable and actually looking forward to
new projects in the future," he said. But none of that was the most impor-
tant part of his growth. "The stuff I've learned the most about is

definitely related to interacting with people," he said. "I had a chance to

see some of the world, to interact with people on many different levels,

and I'm a lot less intimidated by that stuff than before, when I was scared
to death."

( 322 ) JOSEPH MENN

 Shawn said he had no regrets about any of the choices he made. For
someone who hadn't even planned on forming a company four years
before, Shawn could by now take pride in the fact that he had done more
to encourage young people to learn about technology than any number of
presidential initiatives. "Before Napster, there was no such thing as a cool

geek," said Gnutella developer Gene Kan. "Not Bill Gates, not Kevin
Mitnick, not Steve Jobs. People got interested."
After the bankruptcy judge blocked the Bertelsmann sale in Septem-
ber 2002 and before Shawn's talks with Roxio Inc. two months later, he
worked on a different idea. Shawn sought funding for what he described
as a new peer-to-peer system for traffic on the Internet, one that would
respect copyrights. One of his first recruits was Napster engineer Jordy
Mendelson, who went scouting for San Mateo real estate. Shawn told

Ritter that the system would be an open database, one that would help
distribute what artists or others wanted to be sent into the world. Shawn
also got some value from his former adventure, making a deal with a pro-
ducer and selling the rights to his life story to MTV. The first project

struck Ritter as problematic. But he told Shawn: "If anyone can do it,

you can."
"Once Shawn's set his mind on something," Ritter said, "no one can

talk him out of it."

all the rave (323)

 Notes

All oral quotes are from author interviews with the speaker unless other-
wise noted. All e-mails, internal documents, and court papers referenced
in the text are have been seen by the author unless otherwise noted. If any
of the Web pages cited below no longer have the content listed, try

http://web.archive.org, which is attempting to preserve as many old web-

sites as possible. John Fanning declined to be interviewed; when his

intermediaries spoke on his behalf, it is noted in the text.

vii Observe my uncle The entire text of William Shakespeare's Hamlet is available

online and is not protected by copyright. (Neither are many old books, nor songs
from the forties and before.) Hamlet's uncle killed Hamlet's father. It takes some
time for the indecisive Hamlet to figure that out.

Prologue: A Party out of Control

5 a pleasant cocoon The account of the rave was drawn from interviews with Jordan
Ritter, Sean Parker, Eileen Richardson, and Shawn Fanning.
6 It had been a blur to Shawn Sources included Shawn, Richard Besciak, and fellow
high school students.
6 Sponsoring it Parker's background was drawn from interviews with Parker and
others.

7 The third member Ritter's background was drawn from interviews with Ritter and
others.

8 Richardson was thirty-eight Richardson's background was drawn fi-om interviews

with Richardson and others.

( 325)
9 As the good feeling Sources on Fanning's history and his relationship with Shawn
are given in subsequent chapters.

10 Since Amram had been burned Interviews with Amram, Richardson, and others.

1: the rebels
13 It was in a ramshackle old house The chief source for the account of the party
was Coleen Verrier. Joe Rando provided details on the band.
14 "Money was always a pretty big issue" Shawn quoted in "Napster's Shawn
Fanning: The Teen Who Woke Up Web Music," by Spencer Ante, available at
http://www.businessweek.com:/ebiz/0004/em0412.htm. The account of the rest of
Shawn's childhood was drawn from interviews with Verrier, Shawn, and other
sources indicated in the text.
16 John Fanning lived an hour away Sources included several former Chess.net
employees.
16 His uncle wanted to keep playing StarCraft Sources included Parker, Ritter, and
a former Chess.net employee.
18 Shok's work is available See, for example, http://www.hackersclub.com/km/files/

unix/.

19 "I don't see what's so bad about writing viral code" This and other wOOwOO
exchanges archived at http://www.wOOwOO.org/files/misc/wOOfun/wOOquotes.
20 Shawn was an aspiring hacker who was at best a gray hat These programs were
available at http://www.younghackers.freeservers.com/files2.htm.

21 He badly wanted to go to Carnegie Mellon Coleen Verrier.

21 Ritter was born Ritter's background was drawn from interviews with Ritter and
others.

23 BindView was pubUcly credited for the find by CERT See http://www.infosec.
com/internet/99/internet 021399c j.shtml and http://www.packetsormsecurity.
com/9902-exploits/ftpd.txt.
23 Sean Parker's was a paragon of normality Parker's background was drawn from
interviews with Parker and others.

2 : a big idea
29 It was hardly worth the effort to try The description of the inspiration for
Napster came from Shawn's nonpublic deposition in A&M Records et al. v.

Napster Inc., U.S. District Court for the Northern District of California, case
number C 99-5183 MHP.
29 "The index would become out of date" These two quotes are from Shawn's
declaration, available in the A&M Records public court file.

29-30 The entire point of the World Wide Web Berners-Lee's thinking and
comments are from Weaving the Web, by Tim Berners-Lee with Mark Fischetti,

Harper SanFrancisco, 1999.

30 Rob Lord and Jeff Patterson, two computer- and information-science majors
The account of the Internet Underground Music Archive and NuUsoft was drawn

( 326 ) notes
 largely from author interviews with Rob Lord. Ian Rogers of Nullsoft was also
interviewed.
32 David Weekly, a Stanford University student, did just that Weekly's experiment
is told in Sonic Boom, by John Alderman, Perseus Publishing, 2001.

33 as Michael Robertson found after he opened the website MP3.com Sources for
the history ofMP3.com included Beyond the Charts, by Bruce Haring, OTC
Press, 2000.

33 Petty manager Tony Dimitriades The Tom Petty story is from Haring's Beyond
the Charts.

34 "They won't cede control" Robertson's quote is also from Beyond the Charts.

35 "I wanted to make this software work" Shawn's quote is from the declaration in
A^M Records.
36 the word "wOOwOO" was one of the top twenty most-searched-for terms Conover
said he was told this by a friend who worked at Google.
36 "What are you going to do with it?" This was from Ritter's recollection.

36 napster is a darkslde See http://www.OOwOO.org/files/misc/wOOfun/wOOquotes.

37 "Do you realize that this is going to change everything?" This was from
McGann's recollection.
37 some obvious bugs, which Ritter fixed The description of Ritter's early role was
largely from his recollection.

39 Shawn came by Ritter's apartment The first business discussions between Shawn
and Ritter were according to Ritter's recollection.

3: birth of a business
41 took courses at Boston College According to the college registrar.

42 Fanning bought Ed Walter's Cambridge Automation on credit Fanning lawyer

Amy Hogue said the understanding was that Walter would be paid only if the
business succeeded; Walter disputed that.
42 Fanning spent much of his time there Interviews with former Cambridge
Automation employees, including Jack Martin and Duncan Audette.
42 Nevil had been fired The story of Aunyx Corp. was contained in Nevil v. Aunyx,
Plymouth County Superior Court, casenumber CA85-21517. Attempts to locate
Nevil for an interview by searching databases, visiting old addresses, and passing
messages through relatives were unsuccessfiil.

42-43 Rockland won a judgment of more than $7 million Rockland Trust Co. v. Jack

Nevil et al, Plymouth County Superior Court, case numbers CA89-1228-A and
CA90-1055B.
43 Key supplier Unisys ultimately sued Unisys Corp. v. Cambridge Automation Corp.,

Suffolk County Superior Court, case number CA94-1211.

43 One regular player was a CMU computer-science professor named Danny
Sleator The history of the Carnegie Mellon chess servers came from
contemporaneous e-mails, interviews with Sleator and others, and the court file in

notes ( 327 )
 Multimedia Engineering Corp. v. Sleator Games Inc., Suffolk Superior Court, case
number C VI 996-03430.
44 Fanning asked how he covild advertise Dzindzichashvili's tapes This was
recounted in Sleator's answer to the lawsuit.
45 They told the judge Affidavit of Anthony Martin in Multimedia Engineering v.

Sleator Games.

45 For Chess.net, Fanning used a core of Carnegie MeUon students The history of
Chess.net was drawn from former employees, including McBarron, Ramme, and
Dakhnovsky.
46 But Fanning also stopped making payments The story of the BMW was based
on the car-financing documents, Dakhnovsky's credit report, other paperwork
from the time, and interviews with Dakhnovsky and another Chess.net employee
privy to the dispute.

46 a lumber-supply company won a $1,934 default judgment Forester Moulding &

Lumber v. John Fanning, Leominster District Court, case number 0061SC0457.
46 And billing records from 1997 show thousands of dollars The records were
included in the case file for Household Bank of Nevada v. Coreen Kraysler, Hingham
District Court, case number 9858CV0623.
47 The HuU condominium where they lived and the house he was rebuilding at
2 Summit Avenue were both in Kraysler's name HuU assessor's office records.
47 The mansion overlooking the Atiantic was condemned when Kraysler bought it

for $450,000 Hull assessor's office records.

47 The last straw at Chess.net came when Aydar demanded Interviews with former
Chess.net employees.
47 a court entered a default judgment against him over a $17,529 bank debt. Later
that year, he lost another judgment for $26,759 owed to collection agency
Creditrust CAL-SPVl/Assignee of First USA Bank v. John Fanning, Hingham
District Court, case number 9958CV0272, and Creditrust v. John Fanning,

Hingham District Court, case number 9958CV0742.

47 The first debt would prove enough to deter Interviews with Jason Grosfeld, Ben
Lilienthal, Sean Parker, and Yosi Amram.

47 Her condominium complex sued her in April 1999 for unpaid fees Trustees of
Nantascot Place Condominium Trust v. Coreen Kraysler, Hingham District Court,
case number 9958CV0292.
47 More serious was the 1998 collection case Household Bank ofNevada v. Coreen
Hingham District Court,
Kraysler, case number 9858CV0623.
49 "I'm a fighter" The quote is from "Fanning, the Elder," by Justin Hibbard, in the
August 2002 issue of Red Herring.
49 Fanning was charged with assault and battery Commonwealth v. Fanning,
Hingham District Court, case numbers 9958CR0016-0017.
49 He needed stitches in two places Court tape of proceedings on February 7, 2002,
in Commonwealth v. Fanning, above.
49 Lynch was charged with malicious destruction of property Commonwealth v.

Lynch, Hingham District Court, case number 9958CR0018.

( 328 ) notes
50 Lynch was pursuing a suit Robert Lynch v. Coreen Kraysler, John Fanning et al,

Plymouth Superior Court (Plymouth), case number PLCV200 1-0 1481.

50 the condo complex workers' compensation insurer Sentry Insurance v. David
Fanning and John Fanning, Plymouth Superior Court (Brockton), case number
CAOl-1551.
51 Lawrence Lessig and others have argued convincingly In, among other places.
Code and Other Laws of Cyberspace, Basic Books, 1999, and The Future of Ideas,
Random House, 2001.
51 "Through 1996, most of what happened to the Web was driven by pure
excitement" Berners-Lee, Weaving the Web.
53 "He felt strongly he had something to do in the world" Rasala's comment is from
"Hi, I'm Napster," by Linda Gorov, available at http://www.boston.com/
datlyglobe2/163/nation/ Hi I m Napster +.shtml.
55 When Shawn told Sean Parker about it, Parker couldn't beUeve it Interviews
with Parker.

4 : getting money
57 John Fanning may have sewn up 70 percent John Fanning took 7 million shares
and Shawn 3 million. Most internal documents said that 1 million additional

shares were reserved for future employee options; at least one document says 2
million shares were reserved.

60 Sam Hanks, twenty-seven, met Parker, Shawn, and Fanning The story of the

logo was from Hanks and Parker.

60 Grosfeld and LUienthal worked well as a team The account of the pair's

involvement with and study of Napster was mainly from interviews with the two
men and with Parker.

62 It called for Draper to put in $500,000 According to Grosfeld and Parker.

Draper's later e-mails to Amram cited the same figure.

67 John Fanning, also well aware of the legal hurdles, was doing his own research
Interviews with Andrew Bridges, Seth Greenstein, and Parker.

71 Draper agreed to give Napster only a $50,000 loan The loan was described in
interviews with Amram, Parker, and Richardson, among others. The exact terms

have long been disputed, but the basics of it included here were drawn from
internal Napster e-mails.

77 Andy Evans, on the other hand, was something completely different Sources for
Evans's history included "Andrew Evans Blows His Second Chance," available at

http://www.redherring.com/index.asp?layout=story&channel=20000002&doc id=
110019811 and "Gates' Old Pal Evans Target of Biz2Net's Wild Fraud Lawsuit,"
available at http://www.observer.com/pages/story.asp?ID=2832.

79 Fanning had met Amram years earUer The history of Amram's relationship with
Fanning was largely from interviews with Amram.
80 Individual was based Sources for the history of Individual included interviews
with Amram and others at the company and the prospectus for the sale of its

notes ( 329 )
 stock by shareholders dated September 5, 1996, available from the SEC or via the
EDGAR online document service.

80 One of those companies was Freeloader The Freeloader story was drawn from
interviews with Jamie Hamilton, Mark Pincus, Amram, other Individual Inc.
officers, and articles including "Start Up. Cash Out. Repeat," in the May 15, 1998
Inc. magazine, available at http://www2.inc.com/search/1128-print.html, and
"Freeloader's Free Fall," available at http://washtech.eom/washtechway/l 1/

techcap/1 93-1. html.

81 Suck called it "era-definingly irresponsible" Available at http://www.suck.com/
daily/96/08/Ol/daily.html.
82 "Yosi pursued a wide array of investments" Glabe was quoted by CNet, available
at http://news.com.com/2100-1001-220513.html.
82 Amram issued a highly unusual statement Cited in Steven Cooperman and Scott
Sklar V. Individual Inc., et ah, U.S. District Court in Massachusetts, case number
CA96-12272 DPW. Available at http://securities.stanford.edu/
complaints/individual/96cvl2272/001.html.
82 according to the police report Burlington Police Department case number 96-
08786.
83 "I'm not going to invest if you're the CEO" This was from Amram's recollection.
84 He agreed to put money in on three conditions Also from Amram's recollection.

5 : going west
85 he misplaced his driver's license and couldn't make the flight Shawn misplaced
his license fairly frequently. But it wasn't always as much of a problem: According
to Parker, Shawn once was allowed to board a flight to Los Angeles after he
produced a copy of Time magazine with him on the cover as photo identification.

85 When Parker arrived This account of the stay in Sausalito was mostly based on
interviews with Parker.
87 Amram told his network The story of Amram's hiring of Bales and Richardson

was based on interviews with all three.

89 Richardson had a personal reason The story of Richardson and Lee was told by
both. Richardson's career history was largely from her, corroborated by Adas,

JK&B, and Interwoven executives.

91 JK&B Capital was flush with money This was from a JK&B partner, the firm's

website, and Richardson.

94 "I've always wanted to do something big" Bales's comments and the account of
his youth are from an interview with the Augusta Chronicle, available at

http://vi^ww.augustachronicle.com/stories/071800/bus 129-6438. 000. shtml.

94 would identify himself as a cofounder ofQuote.com See, for example, "Napster
Investors Try New Venture" in the July 17, 2000, edition of USA Today, available
at http://www.usatoday.com/life/cyber/invest/in880.htm. That article also stated

that Bales "discovered Napster creator Shawn Fanning."

95 Fikker joined them at News Direct Sources used for the account of News
Direct/ON24 included Bales, Fikker, Chen, Amram, and various news articles.

( 330 ) notes
96 Bales's criminal record San Mateo Superior Court, case number SM245322A.
97 the woman's sworn statement San Mateo Superior Court, case number
F-039868.
99 Soon after Shawn and Parker arrived The stories of the breakfast and rental car
incident were from Parker. Parker, Shawn, and Richardson all confirmed the tale

of their accidental introduction.

101 Fanning's deputy, Tom Carmody, flew out from Hull Parker's recollection.
104 Kessler and Amram had a series of meetings This was mostly from Kessler,
with confirmation from Amram. Kessler was the source for his conversation with
Fanning.
105 Ritter made it to the Napster offices This was primarily from Ritter, with
backup from another person at the meeting.
106 Ritter returned to work out a deal with Richardson The story of the negotiation
was told by both Ritter and Richardson.
107 sales by Fanning and the company According to capitahzation tables from the
time.

107 the Xtime employees in the adjoining cubicles thought nothing of it The story
was told by Xtime's Travis Murdock. The stories from the early days in San
Mateo were provided by multiple employees who corroborated each others'
accounts.

108 Bales took Shawn, Parker, and Ritter to look at a house This story was told by
Parker and Ritter and largely confirmed by Bales, who also provided the account

of how he recruited Jensen.

108 the young men blew off" steam All parts of this story were based either on one
party confessing to something he did or on the accounts of two sources who were
closely involved.

109 more than one romance The facts of the Richardson-Garrehy-Lee triangle were
confirmed by all parties.

110 one of the very first articles Available at http://zdnet.com.com/2100-ll-

515433.html?legacy=zdnn.
111 it seemed remarkably easy for firms to get Conway's blessing Conway's career
path is from The Godfather of Silicon Valley, by Gary RivUn, AtRandom.com
Books, 2001.
112 There was Pixelon For more on Pixelon, see http://www.thestandard.com/
article/display/ 0,1151, 16309,00.html.

113 Another Internet video firm that qualifies as a paragon of the times For more
on DEN, see "How a Visionary Venture on the Web Unraveled," in the May 7,

2000, edition of the Los Angeles Times. A summary is available at http://pqasb.

pqarchiver.com/latimes/index.html?ts=1022208002, but they want you to pay

$2.50 to read the whole thing.
114 Conway would give editorial director Chris Alden This also is from RivHn's
The Godfather of Silicon Valley.

116 The other major financial participants According to capitalization tables.

notes ( 331 )
6 : fame
119 It was after another chemically enhanced rave The anecdote was Parker's.
120 There were other causes for celebration inside Napster's offices Ritter, Aydar,
and Garrehy were the primary sources.

122 One of the first broader-audience publications The story was archived at

http://www.wired.com/news/technology/0,1282,32151,00.html.
124 At the Bubble Lounge that night This came mainly from Murdock.
124 In mid-November, the digital music magazine Webnoize said the RIAA
intended to sue . . . Wired confirmed the report See http://www.wired.com
/news/business/0,1367,32559,00.html.
124 "We are freaking four months old" Richardson's quote was in the story at
http://www.wired.eom/news/mp3/0, 1285,32559,00. html.
124 The RIAA finally filed the lawsuit A&M Records et al. v. Napster Inc., U.S.
District Court for the Northern District of California (San Francisco), case
number C 99-5183 MHP.
126 Richardson clashed so badly with John Fanning Sources included Richardson,
Amram, and others present during board meetings.

129 This three-way chat The log was posted to the moderators' e-mail Hst.

132 But Chang was ready with a quote See CNet article from March 22, 2000, at

http://news.com.com/2100-1023-238290.html?legacy=cnet.
135 Paulson was featured in dozens of interviews See, for example, http://www.cnn.
com/virtual/editions/europe/2000/roof/change.pop/frameset.exclude.html.
136 Chuck D of Public Enemy went further Op-Ed available at http://www.

rapstation.com/files/news/archive/print media/april29 newyorktimes bl

large.gif.

136 Napster quietly paid Chuck D Napster disclosed the payment in the documents
for Bertelsmann's loan, saying it was for "the cost of speaking engagements and
support." The documents were filed as an exhibit in Napster's bankruptcy in
Wilmington, Delaware. In re Napster et al, case number 02-11573.
136 Techno star Moby was also a big help He and others quoted on http://www.
napster.com/speakout/artists.html.
137 the band wrote on its site Still posted at http://www.offspring.com/
news/news5 9 html. .

137 Napster was duly mocked On numerous websites and the front page of the
Wall Street Journal on July 26, 2000.
140 Napster sued Sport Service Napster Inc. v. Sport Service Inc., U.S. District Court

for the Northern District of California, case number COO-04821 MMC.

140 some, Uke Peter Gabriel, obUged Posted at http://www.riaa.org/Napster
artist quotes. cfm.

140 Rapper Eminem was more blunt Also on http://www.riaa.org/Napster

artist quotes cfm .

141 Metallica filed suit against Napster Metallica et al v. Napster, U.S. District

( 332 ) notes
 Court for the Central District of California (Los Angeles), case number 00-
03914.
141 Richardson was quoted as saying that the band had never tried to contact
Napster Among other places, at http://www.wired.com/news/politics/
0,1283,35670,00.html.
141 Even most MetalHca Usteners sided with Napster According to interviews with
various fans of both Metallica and Napster, including John DiCarlo.
141 Killmetallica.com Other sites were listed at http://www.killmetallica.com/

contents.html.
142 Lyttle, who used the handle Pimpshiz See "An Internet Outlaw Goes on
Record" in the February 24, 2002, San Francisco Chronicle and at http://sfgate.com

/cgi-bin/article.cgi?file=/chronicle/archive/2002/02/24/MN182931.DTL8aype=
printable.

142 Lyttle reached Shawn and Ritter on IRC According to Ritter.

142 Parker didn't help matters According to Paulson.
144 "Fuck you, Lars" This is from "The Heavenly Jukebox," by Charles Mann, in
the September 2000 issue of The Atlantic magazine.
145 UMch seemed to slump This story came from Murdock. King said he didn't
recall the words Uhich used during the brief conversation inside Napster.
145 After a news website linked to the comments ZDNet News.
145 A Napster fan, crying censorship, got hold of Ritter on an IRC channel and
complained Story told at http://zdnet.com.com/2100-ll-520694.
html?legacy=zdnn. Ritter confirmed the substance of the exchange.

7 : the industry
147 Richardson wanted to do the most Interviews with Richardson, Parker, and
other Napster executives.
149 Morris Levy, founder of Count Basic home Roulette Records From Fredric
Dannen's Hit Men, Times Books, 1990.
149 Take, for example, the matter of payola The history of payola is best told by
Dannen; for ongoing journaUsm on the matter, the best work is by Chuck Philips
of the Los Angeles Times.
150 Isgro returned to living the high life in Beverly HiUs until he was sentenced
Articles on Isgro's case are available through http://www.latimes.com. The
sentencing was reported on September 8, 2000.
151 In a hypothetical example of a smash success Contained in Moses Avalon's
Confessions of a Record Producer, 2nd ed., Backbeat Books, 2002.
152 The U.S. Federal Trade Commission investigated A reasonable summary of the
issues ran in the August 14, 2000, Seattle Times.

152 In a 2000 settlement of the charges FTC press release dated May 10, 2000.
155 Glaser was brimming with confidence A video of the speech was available over

the Web at http://www.webnoize.com.

notes ( 333 )
155 But he was also a huslg'^ six-foot-three Background from Dannen's Hit Men. Al
Smith declined several interview requests.

160 Richardson gave her music-discovery pitch Interviews with Richardson and
Cohen.
160 Bales came down for the get-together Interviews with Samit and Bales.
160 Tom Giesehnann, an investor with Bertelsmann's venture-capital arm
Interviews with Bales and Gieselmann.
164 "Are you sure suing them is enough?" The anecdote was told by Rosen.
167 John Fogerty told the crowd at one benefit concert Reported in the February

28, 2002, Los Angeles Times.

168 "The record industry fiddled on the sidelines" A copy of Henley's prepared
testimony was posted at http://www.recordingartistscoalition.com/.

8: competition
171 The lawyers opposed linking According to interviews with Ritter and others.
174 Gnutella would have had some major headaches The story was confirmed by
McGann, Ritter, Song, and Rogers.
175 Soon someone using Frankel's IRC handle "deadbeef Reported by Amy '

Harmon in the March 20, 2000, New York Times.

176 That worried Shawn, who wondered if AltaVista's According to Shawn's
e-mails.

176 Ritter went to dinner with Dodge The story was told by Ritter.

179 Ritter and Shawn qviickly got hold of him in a private chat According to Ritter.
184 chairman Andy Grove, the head of the world's largest microprocessor maker
The comment was printed by Fortune and other outlets and was posted on
Napster's website until Grove asked that it be removed, according to a Napster
source.

185 Kan had applied at Napster The story was told by Ritter and Dembo and not
disputed by Kan.
188 soon got a call from Conway's more-organized partner Bozeman's call was
remembered by Kan.
188 "There was no specific business model" Bozeman's comment is from "Can
Peer-to-Peer Grow Up?" by Justin Hibbard, in the December 4, 2000, Red
Herring.
189 The moral of some of Cringely's technology stories Robert Cringely, Accidental
Empires, Addison-Wesley Publishing, 1992.
189 The Innovator's Dilemma Clayton Christensen, Harvard Business School Press,
1997.

9 : ventu re games
192 Fanning and his marketing deputy, Tom Carmody According to Richardson
and Amram. Another executive confirmed the amount. Parker remembered
overhearing Richardson demanding of Fanning over the phone, "Why is Tom
Carmody on the payroll?"

( 334 ) notes
192 Amram's initial $250,000 investment also went to Hull According to
Richardson and Amram.
192 Napster's junior holders included According to capitalization tables.

193 Fanning found an ally in Amram According to Amram.

193 The prospectus for the IPO The ValiCert prospectus is available online from
the SEC's EDGAR service.
194 ValiCert angel investor and entrepreneur Gary Kremen This much of the story
told by Kremen is confirmed by Amram.

194 Fanning and Richardson argued often The wording of the exchanges was
Richardson's recollection. Amram didn't disagree with them.
195 he argued with Richardson and went behind her back repeatedly Bales himself
gave numerous examples.
196 Yet Bales went ahead anyway This was from Parker, Bales, and Richardson.
197 Bales called New York investor Jason Grosfeld According to Grosfeld;
Richardson and Bales didn't dispute the story.

200 he begged Richardson not to fire him According to Richardson and other
Napster staffers.

200 Bales was spreading a rumor Bales admitted this.

200 The engineers told their boss, Kessler, that they would quit According to all

three.

201 Kessler, in turn, took the threat seriously enough This was according to Kessler.

Bales said people were unduly alarmed.

203 one director who had invested This was according to Bales. DeVito spokesman
Stan Rosenfield confirmed the initial meeting and said nothing happened
afterward with his client. Avnet didn't respond to an interview request passed
through his agent.
205 Alsop wrote in Fortune The November 13, 2000, issue. The column is posted
at http://www.fortune.com/indext.jhtml?channel=print article.jhtml&doc
id=00000191.
205 The company spent $1.6 million According to an internal income statement.
206 Doerr gave Richardson a hug Details of this meeting were from Richardson;
Mackenzie declined to be interviewed.

207 According to Turner's e-mails This was what Turner said the e-mails contained

after she reviewed them.

207 Richardson returned from a meeting with Turner This account was given by
Richardson and Turner, confirmed by Amram, and supported by Richardson's
e-mails and draft documents laying out the merger terms.
208 In a tense and sometimes circular two-hour conference call The call was
described by Richardson and Amram.
211 "If Hummer Winblad doesn't invest" Conway and Parker told the same
story.

212 John Hummer, and another VC at the San Francisco firm drove to see
Richardson These meetings were laid out by Richardson in her deposition.

214 The charity auction was emceed by comedian Dana Carvey The perceptions of

notes ( 335 )
 Shawn and Parker were given in interviews. The surrounding events and
Andreessen's quote are from a Bloomberg News article carried on CNet's site on
May 22.

215 Barry harbored a rebellious streak His career was described by Barry and others
in interviews.

220 Zero Gravity, whose smaller shareholders included The story of Zero Gravity
came mainly from the 2001 lawsuit Zero Gravity Management v. John Hummer et
al., San Francisco Superior Court, case number 321442, with additional material
from interviews and from articles in the June 22, 2001, San Francisco Business
Times and the July 9, 2001, BusinessWeek. The last is available at http://www.
businessweek.com/magazine/content/01 28/b3740101.htm.
220 she said at the time The "sticky" quote is from the March 19, 1999, Puget

Sound Business Journal.

220 Johnston, who had to sue for access Phoenix Partners IV et al. v. Rival Networks,
King County Superior Court, case number 01-2-13876-6SEA.
221 "I am the record companies' worst nightmare" Quoted in August 14, 2000,
Fortune and available at http://www.fortune.com/indext.jhtml?channel=
print_article.jhtml&doc_id=00000758.

10: hummer winblad

225 RusseU Frackman, the fiity-five-year-old Los Angeles attorney Frackman, court
rulings, and his firm's documents were the sources for his career.

228 didn't stop his uncle from claiming Napster's appUcation for a patent on its

"Real-time search engine" was filed on December 15, 1999, and granted on April
2, 2002, and given number 6,366,907. It can be found at http://patft.uspto.gov/
netacgi/nph-Parser?Sectl==PT02&Sect2=HITOFF8cu=/netahtml/search-
adv.htm&i=l&p=l&f^G&l=50&d=ftOO&Sl=Fanning-Shawn.INZZ.&OS=IN/
Fanning-Shawn&RS=IN/Fanning-Shawn.
230 Borkowski had been working until near midnight This account was drawn from
Borkowski, Parker, and the deposition transcript.
234 When Napster called, Boies was out of town The story of Boies's decision to

take the case and his quotes were from the October 2000 issue of Wired
magazine, available at http://www.wired.eom/wired/archive/8.10/boies pr.html.

241 He estimated there was only a 10 percent chance According to a Fanning

e-mail cited in a BusinessWeek story of August 14, 2000, and available at
http://www.businessweek.com/2000/00_33/b3694001.htm.
246 Barry scribbled out a statement on the spot Ibid.

246 Parker was in Virginia and called Parker's recollection.

247 Shawn played it populist cool for MTV A transcript of the MTV interview is

available at http://www.mtv.eom/bands/archive/n/napsterOO/? requestid=260347.

247 "Napster" became the most-searched-for term The Lycos 50 for August 1.

Available at http://50.lycos.com/080100.html.
248 But Kozinski was excited This account was drawn from interviews with two
well-placed sources inside the appeals court.

( 336 ) notes
249 "This is like the playoffs" Also from the August 14 BusinessWeek story.
250 At a California airport on July 5 Most of the details in the account of the early
talks were from an author interview with Bronfman.

251 less attractive than the Sun Valley summit terms This was according to
Bronfman. Barry dechned to address the deterioration in the talks in detail, except
for saying that Bronfman stopped returning his calls. Grove declined to be
interviewed.
252 "Your biggest problem" Rosen's recollection.

252 more than $100,000 in stock It was unclear how much Shawn sold overall. By
around the end of 1999, he had already sold $125,000 worth, according to
internal e-maUs. Two of his close friends said the final figure was closer to
$500,000.
255 He sent a message to Ian Rogers This was from Rogers.
257 It wasn't national television Sources for the scene at the awards included
Napster employees, a NuUsoft employee, and others in attendance.
258 She countersued Geffen Records et al. v. Courtney Love et al., Los Angeles
Superior Court, case number BC 2233364, available at http://www.
cappeUomccann.com/courtney/courtney cross.htm. Love settled her case on
undisclosed but favorable terms in September 2002.

11 : bertelsmann
261 "There's no question that file-sharing will exist" The quotes from the press
conference were from contemporaneous news accounts.
262 MiddeUiofFwas among the most predisposed For more on MiddelhofFs
background, see "A New Net Powerhouse?" in the November 13, 2000,
BusinessWeek, available at http://www.businessweek.com/2000/00
46/b3707001.htm, and "Napster Meister," in the November 13, 2000, Time
magazine, available at http://www.time.com/time/magazine/article/
0,9171, 1101001113-59778,00.html. Other material is from Bertelsmann's
website.

262 "I just got used to being turned down" Jensen's deposition and Hilbers's
deposition, both filed as exhibits in Napster's bankruptcy.
263 "We're investing in Napster" This account was based on interviews with people
familiar with the conversations. For more on the internal dispute, see "Thomas
Middelhoff Has a Hunch," in the June 10, 2001, New York Times Magazine.
Middelhoff said that Zelnick and the others eventually came around and
supported the Napster investment, then exaggerated their opposition after their
dismissal.

263 But he passed along Schmidt's e-mail was filed as an exhibit in Napster's
bankruptcy.
264 "It is true that this private exchange" MiddelhofFs memo, the consultants'
presentation, and the task force report were all filed as exhibits in Napster's

bankruptcy.

notes ( 337 )
265 MiddelhofF treated Shawn to dinner The dinner details and MiddelhoiFs quote
were from "Napster Meister," in Time.
265 Napster added sweeteners for Shawn The figures were disclosed in the
documents for Bertelsmann's loan, filed as an exhibit in Napster's bankruptcy.

266 The executives were coached The coaching came in a question-and-answer

preparation sheet filed as an exhibit in Napster's bankruptcy.

273 Richard Parsons, co-chief operating oflScer The comment was reported in the

New York Times of June 10, 2001.

274 "Is anyone out there besides me wincing" Bo's AH Things Napster, http://www.
uninet.net/~blaisdel/napster.htm.
277 when Congress got involved, it tended to favor copyright holders Lawrence
Lessig provides a good history of copyright evolution in The Future of Ideas and
Code and Other Laws of Cyberspace.
278 The biU was challenged in court Eldred v. Ashcroft, U.S. Supreme Court case
number 01-618. Many of the case documents are available at http://eldred.cc/.

278 that involving the DVD encryption technology known as CSS Universal City

Studios et al. v. Shawn Reimerdes et a/., U.S. District Court for the Southern
District of New York, case number OO-CV-277 (LAK)(RLE). Lessig's Future of

Ideas gives a summary of the issues. Many of the case filings are available at

http://www.eff.org/IP/Video/MPAA_DVD_cases/.
279 The labels went after MP3.com Universal Music Group et al v. MP3.com, U.S.
District Court for the Southern District of New York, case number OO-CV-
00472. A copy of the judge's ruling is available at http://news.findlaw.com/cnn/

docs/mp3/0906 mp3 unoffruling.html.

280 "I know something about songwriting" A Web video of Hatch's remarks was
posted at http://www.webnoize.com.
280 So he expUcitly asked Congress not to change The testimony of Barry, Ulrich,
and Kan are available at http://www.senate.gov/~judiciary/search testimony.
cfm?testimony=napster.
281 Only now did Barry ask Congress to force digital licenses on the record industry
The testimony is available at http://www.senate.gov/~judiciaiy/search testimony.
cfm?testimony=napster.
281 The most impressive display of the second tactic This was based on interviews
with people who attended. The National Academy's version of events is from a

press release dated April 6, 2001.

282 perhaps by replacing HB The eCommerce Group meeting agenda was filed as

an exhibit in Napster's bankruptcy.

284 he thought a full release needed Hilbers's deposition, filed as an exhibit in
Napster's bankruptcy.
284 Napster has shown two things Farmer's comment appeared in an interview

available at http://www.theatlantic.com/issues/2000/09/mann-farmer.htm.

284 Sorenson wrote to his boss Sorenson's memo, Hilbers's description of the AOL
terms, and Hilbers's e-mail to MiddelhofF were filed as exhibits in Napster's
bankruptcy. Other Hilbers quotes are from an author interview.

( 338 ) notes
12: the coup
289 He reasoned that Bertelsmann would have a better chance According to
interviews with Middelhoff, Hilbers, and others close to the process.
290 Hummer Winblad had insisted on that proxy According to interviews and an
e-mail from Barry to Napster directors before the deal closed. Other big investors
also had to pledge to vote their shares as the board instructed on major decisions.
291 Hummer Winblad won what is known as a liquidation preference The terms of
the various preferences were described in interviews with Barry and other Napster
investors.

291 would get nothing at all for their Series A Junior According to legal papers filed
in John Fanning v. John Hummer and Hank Barry, Delaware Chancery Court for
New Castle County, case number 19500 NC.
291 Bertelsmann Direct Group CFO Bill Sorenson The deposition was filed as an
exhibit in Napster's bankruptcy.

292 he repudiated the conversion According to Amram's deposition in John Fanning

V. John Hummer and Hank Barry, Delaware Chancery Court for New Castle
County, case number 19500 NC.
293 He called both his nephew The descriptions of Fanning's calls were from the
recipients.

294 Caught in traffic on U.S. 101 Partially the author's fault; I was driving and
picked a bad exit.

295 Fanning filed a lawsuit in Delaware's Chancery Court John Fanning v. John
Hummer and Hank Barry, Delaware Chancery Court for New Castle County, case
number 19500 NC.
295 The Los Angeles Times promptly identified On March 28, 2002. Available at
http://www.latimes.com.
300 Napster filed for Chapter 11 bankruptcy in Delaware In re Napster Inc., et al,

case number 02-11573.

302 "that left me with Joel Klein" From Hilbers's deposition, filed as an exhibit in

Napster's bankruptcy.

Epilogue: After the Revolution

310 "I fear we're getting into a game of Whack-a-Mole" The executive was quoted
in a July 23, 2001, Wired News article available at http://www.wired.com/news
/mp3/0,1285,45234-2,00.html.
311 It later emerged The New York Times article is available with free registration at

http://www.nytimes.com/2002/03/07/arts/music/07POPL.html.
311 Disney CEO Michael Eisner testified in Congress Eisner's testimony was
before Hollings's Senate Commerce Committee and is available at http://

commerce.senate.gov/hearings/hearings0202.htm. Barrett's response came in the

friendlier setting of the Judiciary Committee.
312 they had also invested a combined $200,000 in Napster According to

capitahzation tables.

notes ( 339 )
313 according to the U.S. Department of Commerce The Commerce study and the
Brookings figure were cited in "Kazaa Taunts Record Biz: Catch Us," by Brad
King, in Wired News, September 25, 2002. Available at http://www.wired.com/
news/technology/0,1282,55356,00.html.
315 "This is serious research" The army official was quoted in an interview by
Richard Koman published on an O'Reilly & Associates website devoted to peer-
to-peer efforts. The fixU interview is available at http://www.openp2p.com/
pub/a/p2p/2001/08/28/p2pwar.html.
315 GlaxoSmithKline uses Groove Networks The two corporate examples are given

in David Barkai's Peer-to-Peer Computing, Intel Press, 2001.

316 BusinessWeek ran a long cover story "Inside Napster," by Spencer Ante, in the

August 14, 2000, issue. Richardson gave a detailed account of her experience with
the writer after publication, including her request to him for a correction. None
was ever pubUshed. In an interview by the author. Ante decUned to comment. A
follow-up voice-mail message was not returned.
318 The firm's SpamNet peer-to-peer system SpamNet was so good that in January
2003, Ritter made it back to Wired magazine's Rave Awards this time in his —
own right, as a finalist for software designer of the year.
319 In the fall of 2000, he pitched investors A copy of the presentation was filed in

Altholtz V. Nef Capital, Norfolk County Superior Court, case number CAOl-
00169.
319 entertainment lawyer Howard Altholtz Altholtz v. NetCapital, Norfolk County
Superior Court, case number CAOl-00169.
321 Fanning blamed, of all people Fanning's e-mail was included as an exhibit in
Napster's bankruptcy.

( 340 ) notes
 Bibliography

Alderman, John. Sonic Boom. Cambridge, Mass.: Perseus Publishing, 2001.

Ante, Spencer. "Inside Napster." BusinessWeek, August 14, 2000.
. "Napster's Shawn Fanning: The Teen Who Woke Up Web Music." Busi-
nessWeek, April 12, 2000.
Avalon, Moses. Confessions of a Record Producer, 2nd ed. San Francisco: Backbeat
Books, 2002.
Barkai, David. Peer-to-Peer Computing. HiUsboro, Oreg.: Intel Press, 2001.
Berners-Lee, Tim, with Mark Fischetti. Weaving the Web. New York: Harper San
Francisco, 1999.
Christensen, Clayton. The Innovator's Dilemma. Cambridge, Mass.: Harvard Busi-
ness School Press, 1997.
Cringely, Kohert. Accidental Empires. Boston: Addison-Wesley Publishing, 1992.
Dannen, Fredric. Hit Men. New York: Times Books, 1990.
Goodin, Dan. "Being John Fanning." Industry Standard, August 14, 2000.
Gorov, Lynda. "Hi, I'm Napster." Boston Globe, June 11, 2000.
Greenfeld, Karl Taro. "Meet the Napster." Time, October 2, 2000.
Haring, Bruce. Beyond the Charts. Los Angeles: OTC Press, 2000.

Heilemann, John. "David Boies: The Wired Interview." Wired, October 2000.
Hibbard, Justin. "Can Peer-to-Peer Grow Up?" Red Herring, December 4, 2000.
Kaplan, David A. The Silicon Boys. New York: William Morrow, 1999.
Kirkpatrick, David. "Thomas Middelhoff Has a Hunch." New York Times Magazine,
June 10, 2001.
Lessig, Lawrence. Code and Other Laws of Cyberspace. New York: Basic Books, 1999.
.
The Future ofIdeas. New York: Random House, 2001.
Litman, Jessica. Digital Copyright. Amherst, N.Y.: Prometheus Books, 2001.
Menn, Joseph. "Napster Was GambUng AH the Way." Los Angeles Times, February

25, 2001.

( 341)
Oram, Andy, ed. Peer-to-Peer: Harnessing the Power of Disruptive Technologies.

Sebastopol, Calif.: O'Reilly 8c Associates, 2001.

Perkins, Anthony, and Michael Perkins. The Internet Bubble. New York: Harper
Business, 1999.
Rivlin, Gary. The Godfather of Silicon Valley. New York: AtRandom.com Books,
2001.
Stross, Randall. EBoys. New York: Crown Business, 2000.
TuUy, Shawn. "Big Man Against Big Music." Fortune Magazine, August 14, 2000.

( 342 ) bibliography
 Index

Andreessen, Marc, 11, 115, 188, 220

Angel Investors LP, 110-11, 112, 293-94
A&M (recording company), 216 antitrust laws, 152, 154, 285-86, 313
Accidental Empires (Cringely), 189 AOL. See America Online
Adaptec Inc., 305 AOL Europe, 282
Adobe Acrobat graphic files, 239 AppleSoup, 202
Affleck, Ben, 115 Army, U.S., 315
Alden, Chris, 114 ArtistDirect, 32
Allen, Herb, 250 Association de Mahaiteurs (ADM), 18
Allen, Karen, 160 Asylum, 22, 23
Alsop, Stewart, 204-5 Adas Venture, 91
AltaVista, 35, 176, 239 Audette, Duncan, 43
Althohz, Howard, 319-20 Audio Home Recording Act of 1992, 235,
Amazon.com, 159 242, 244, 269, 270, 272, 277
America Onhne, 25, 38, 175, 250-51, 285 Augusta Chronicle (newspaper), 94
Bertelsmann AG and, 262, 285 Aunyx Corp., 42, 46
Instant Messenger, 322 Avalon, Moses, 151
Napster takeover and, 237-38 Avnet, Jon, 203
share price of, 301 Aydar, Ali, 45, 47, S2, 103, 145, 177, 191
Warner Brothers records and, 149, 153 Napster shares of, 192
Amram, Joseph ("Yosi"), 78-84, 87-89,
116, 126, 160, 163, 207, 208
Angel Investors and, 110-11 B
Bertelsmann acquisition bid and, 292-93, Back to Basics tour (2000), 137
294, 299 Backus, John, 61
Draper Atlantic and, 116-18 Bagg, Gerald, 203
on John Fanning, 93-94 Baker &McKenzie, 315
at Individual, Inc., 79-83, 94 Bales, BiU, 87, 91, 163
Napster shares of, 192-93, 194 background of, 87, 93-98
as Napster's initial investor, 8, 9-10, 85 Business Week Napster cover story and,
post-Napster activities of, 318 316
Richardson and, 88, 91, 93, 94, 208, 317 criminal record of, 96-97

( 343)
Bales, Bill (continued) Chapter 11 Napster reorganization and,
John Fanning and, 193, 195-97, 201-2, 297-98
292 loan to Napster by, 264-65, 266, 289
firings of, 94, 201 Middelhoff dismissal by, 302
at Napster, 87, 93, 94, 99-100, 126, 159, music division, 149, 282-83
160-61, 176 Napster and, 261, 282, 284-85, 289-303
Napster shares of, 192 Besciak, Richard, 15
post-Napster activities of, 318 BindView Corp., 20, 23, 36, 176

venture capital and, 195-201 Biondi, Frank, 202

Ballmer, Steve, 311-12 Blockbuster, Inc., 321
bankruptcy, Napster, 11, 297-300, 309 BMG, 149, 282-83
depositions in, 303-4 Boies, David, 234-35, 237, 263
Barber, Brandon, 135, 137, 138, 143, Napster appeal and, 269, 270-71
144, 178, 257 RIAA preliminary hearing and, 242, 245,
Barksdale, Jim, 95 246
Barlow, John Perry, 30, 235, 236 "Bonehead Safari: My Hunt for America's
Barrett, Craig, 311-12 Dumbest VC" (article), 218-19
Barry,Hank, 212-13, 214, 282, 283, 299 Borkowski, George, 230-32
on appeals court decision, 272 Boult, Terrance, 22
background of, 215-16 Boyda, Chad, 180
Bertelsmann and, 266-67, 290-91, 292, Bozeman, Bob, 110-11, 115, 116, 188
300 Brauns, Martin, 92
business style of, 268-69 Brewer, Evan ("dmessOr"), 18-19, 38
congressional hearing and, 237 Bridges, Andrew, 67, 109-10, 316
fiduciary duty warning to, 298 broadband, 313
HUbers named successor by, 282 Bronfman, Edgar, 156, 249-51, 262, 267
music industry deals and, 249-52, 260, Brookings Institution, 313
262, 273 Brooks, Liz, 107, 147-48, 205, 212, 257
Napster CEO search by, 267-68 Napster merchandising and, 138-39, 140
Napster due diligence and, 225 New Artists Program and, 147, 227
personal indemnification for, 293, Brown, Ian, 183
296-97, 300 Brown, James, 150
at preliminary injunction hearing, 241, Brown, WiUie, 257
246, 249 BuUington, Brett, 188
Ritter on, 254 Busch, Doug, 185
Washington, D.C., lobbying by, 277, Business Week (magazine), 223, 316
279-81
at Wired Rave Awards, 258
BearShare, 283
Beastie Boys, 165-66 Cambridge Automation, 42, 46
Beck (musician), 168, 257 Carey, Richard, 274-75
Beezer, Robert, 270-71 Carmody, Tom, 59, 75-76, 84, 101,

Benchmark 210
Capital, 192, 319
Benjamin, Yobie, 199-200 merchandising rights and, 139-40, 255
Bennet, Steve, 115 Carnegie Mellon University, 21, 22, 43, 85
Berg, Jeff, 115 Case, Steve, 262
Berman, Howard, 311 CBS Records, 150-51
Berners-Lee, Tim, 30, 51 CDs, 158-59, 313
Bertelsmann AG, 3, 157, 160-61 encryption, 63, 224, 311

( 344 ) index
 MP3 format and, 32-33 Constitution, U.S., copyright-and-patent
price-fixing suit, 152 clause, 277-78
sales of blank, 310 Conway, Ron, 110-11, 204, 211, 214
censorship, 134 dot-com financing and, 114-16
FreeNet and, 314-16 John Fanning coup attempt and, 293-94
of offensive usernames, 128-29 Infrasearch and, 188-89
CERT (computer security institute), 20, 21, Conyers, John, 281
23 Cooney, Manus, 279, 281
Chandler, William, 296 Cooper, Chris, 95, 104
Chang, Wayne, 131-33, 144, 145, 274 Copyright Assembly, 238
Chapter 11, Napster reorganization under, copyright law
297-98, 300 contributory infringement concept, 309
chat rooms, 161 expiration dates, 278
Napster, 127-33, 138 gray areas of, 68-69
offensive usernames in, 128-29 history of, 277-78
RIAA surveillance of, 161 intellectual property theft and, 10, 64, 311
See also Internet Relay Chat Internet and, 2, 31, 64, 65, 125, 224-25
Chen, Nina, 95 music industry abuse of, 149, 287
Cherkassky, Alona, 95-96 Napster and, 10, 64, 65-69, 102-3, 138,
chess, 43-44, 78 141, 142, 143, 149, 238-39, 316
ChessClub.com, 44 Paulson on, 143
Chess.net, 20, 86 See also Audio Home Recording Act of
Amram and, 193 1992; Digital Millenium Copyright
John Fanning and, 16-17, 21, 45-47, 78, Act (DMCA) of 1998
85, 103, 191 Corgan, BiUy, 256
Shawn Fanning and, 52-53 Costello, Elvis, 313
Christensen, Clayton, 189 Cravath, Swaine & Moore, 234
Christiansen, Larry, 53 Creditrust, 47, 48
Chuck D, 136 Creighton, Frank, 161-63, 277
Church of Scientology, 64 Cringely, Robert, 189
Cieri, Rick, 298 Crosswalk, 24, 2S
Cisco Systems, 72 Crow, Sheryl, 167
Citron, Alan, 154-57 CSS (DVD encryption), 278
Clarke, Ian, 247, 314-16 Curcio, Mark, 203, 267
Cloudmark, Inc., 318 CuteMX, 170
CNBC (cable network), 220 Czarny, Benny, 176
CNet, 186
Code and Other Laws of Cyberspace (Lessig),
236
Coffee, John, 194 Dakhnovsl^, Dmitry, 44, 45, 46, 52, 86
Cohen, Steve, 276 Damon, Matt, 115
Cohen, Ted, 151, 158-61 Dannen, Fredric, 149
colleges, Napster's growth in, 133-35 Dasher, Ronnie, 164
Collins-Rector, Marc, 113 DeCSS (DVD encryption), 278
compact discs. See CDs Dell Computer Corp., 312
Congress, U.S., 64, 277-81, 311-12 Dembo, Daphne, 107, 185
Senate hearings, 154, 162, 168, 279-81 Devereaux, WiUiam, 82
Conover, Matt ("Shok"), 18, 20, 35-37, 322 DeVito, Danny, 203
Conroy, Kevin, 263, 266 Diamond, Mike ("Mike D"), 136, 165

index ( 345 )
Diamond Multimedia Systems, Inc., 67 DVD encryption, 278
DigitalConsumer.org, 312 Dzindzichashvili, Roman, 44, 45, 85-86
Digital Entertainment Network (DEN),
113
Digital Media Association, 67
Digital Millennium Copyright Act (DMCA) Echo (CD), 33
of 1998, 69, 123, 162, 269-70 eCommerce Group (Bertelsmann), 281-82
DVD encryption and, 278 eCompany Now (magazine), 218
passage of and court rulings based on, EDGAR (SEC online system), 72
64-66 Eierhoff, Klaus, 302
record industry lawsuits under, 278-79 Eisner, Michael, 311
safe harbor exemptions in, 224, 233-34, el8.org, 18

244 Electronic Frontier Foundation (EFF),

digital music 30, 235-36
MusicNet and, 153-57, 285, 287, 310 Elektra records, 167
status in 1998, 29-34 Elliott, Missy ("Misdemeanor"), 281
status in 2000, 153 EMI (record company), 102, 149, 151, 157,
status in 2002, 309 158, 159, 164, 284, 285
Webnoize conference, 159-60 Eminem (rapper), 140-41, 310
See also MP3; Napster; record industry EMusic, 310
digital-rights management, 312-13 encryption, 63, 224, 278, 311
Dimitriades, Tony, 33 Envive Corp., 219
Direct Group, 284-85, 286, 302 eTantrum, 74-75
DiSipio, Fred, 155 Evans, Andy, 76-78, 83
distributed computing, 314 Excite Inc., 80, 188, 219, 312
DMCA. See Digital MUlenium Copyright extraterrestrial intelligence, search for, 314
Act (DMCA) of 1998
Dodge, Don, 176, 239
Doerr, John, 90, 91, 114, 206, 208
Dornemann, Michael, 263, 266 fair-use doctrine, 64, 68, 313
dot-coms Fanning, Brian, 53
Conway financing of, 114-16 Fanning, Coleen, 13-16, 54, 55, 192-93
due diligence and, 112-14 Fanning, David, 49-50
growth of, 120-21, 166 Fanning, Eddie, 13
investment fever, 166 Fanning, John, 1-2, 14
shakeout of, 218-19 Altholtz breach-of-contract suit and, 320
drag racing, 186 Amram on, 93-94
Draper, Tim, 117 background of, 9, 41-45
Draper Atlantic, 47, 61, 63, 84 Bales and, 195-97, 201-2, 292
Napster agreement with, 116-18, 208, Benjamin on, 199-200
255 business career of, 41-50, 121
Draper Fisher Jurvetson, 117, 118 Business Week Napster cover story and,
Dr. Dre (rapper), suit against Napster, 141, 316-17
240, 244 Chess.net and, 16-17, 21, 45-47, 78, 85,
drug use, 5, 108-9, 119 103, 191
due diligence, 78, 98, 225 Ted Cohen and, 159
definition of, 63-64 copyright law research and, 66-68
dot-coms and, 112-14 Lilienthal's and Grosfeld's negotiations
"Dugsong." See Song, Dug with, 59, 64, 69-71
Durst, Fred, 137 Napster and, 50-52, 54-55, 58-60,

( 346 ) index
 93-94, 123, 126, 148, 162-63, 207, resignation of, 299
208, 228, 240, 254-55, 290-91 RIAA suit deposition of, 228-30
Napster coup attempt by, 292-96, 298, on Richardson, 88
299, 305 Ritter and, 252, 260
Napster stock control by, 9-10, 208 Rogers and, 166
nephew Shawn and, 9, 15-16, 54, 55, 70, Roxio Inc. and, 306, 323
301, 320 server linking and, 171-73, 176-79
post-Napster activities of, 319-21 at Webby Awards, 211
pretrial deposition of, 295-96 Wired Rave Awards and, 257-58
RIAA contact with, 162-63 Farber, Steve, 92, 94
Richardson and, 89, 191-92, 194-95, Farmer, Dan, 284
208-9, 212-13, 292, 317 Federal Communications Commission
stock conversion and, 292, 295 (FCC), 150
Fanning, Shawn Federal Trade Commission (FTC), 152
background of, 5-6, 14-20 Fenne, Michael, 112-13
on Bales, 201 Fidelity Investments, 41-42
on Barry, 269 Fidelman, Barry, 91
Bertelsmann deal and, 261, 265-66, 282, fiduciary duty warning, 298
291, 301 Fikker, Csaba, 95, 203, 204
as Business Week cover subject, 223 file-sharing systems
cars of, 6, 15, 186 status in 2002, 309
celebrity of, 1, 19, 133, 223, 247, 252-53, See also Napster; peer-to-peer systems
255-58, 264, 323 filtering, 273-76
at Chess.net, 52-53 Firefly, 8, 88, 91
computer security interests of, 19-20, 322 Fletcher, Rick, 131-32
at Conway benefit, 214-15 Flycode, 203, 204, 318
copyright law and, 66-67 Fogerty, John, 167
John Fanning's coup attempt and, 293 Fonovisa Inc. v. Cherry Auction, Inc. (1993),
John Fanning's influence on, 9, 15-16, 66
54, 55, 70, 301, 320 Fortune (magazine), 1, 9, 72, 205, 221, 251
MetaUica suit and, 145 FortuneCity.com, Inc., 198-99
Middelhoff and, 261, 265-66, 282, 301 Foundation Capital, 92
move to CaUfornia by, 6, 85-87, 98-100 Frackman, Russell, 125, 225-30, 241-45, 271
MTV appearances by, 247, 323 Frankel, Justin, 31, 73, 170-71, 173-74,
Napster chat rooms and, 128, 129, 130 185-87, 197, 257
Napster development and, 29-30, 34-39 Freed,Alan, 150, 310-11
Napster expansion and, 239 "Free Girl Now" (single), 33
Napster II and, 283 Free Internet Chess Server, 44
Napster internal conflicts and, 126-27, 209 Freeloader, 25, 81
Napster merchandising and, 137, 138-40 FreeNet, 257, 314-15
Napster's cofounding by, 5-6 FTP (FUe Transfer Protocol) sites, 29, 162
Napster's development by, 34-39 Fuentes, Daisy, 257
Napster shares of, 192
as Napster spokesman, 122
at Northeastern University, 21, 29, 38,
53-54 Gabriel, Peter, 140, 313
Parker and, 17, 24 Garrehy, Jessie, 109, 176, 200, 318
post-Napster activities of, 321-23 Gates, Bill, 51, 76, 77, 218, 234, 323
at preUminary injunction hearing, 241, Geffen Records, 32-33, 258
245-46 Gelsinger, Patrick, 315

index ( 347 )
Gibson, William, 235 fiduciary duty warning to, 298
Gidwitz, Jim, 116, 192, 203, 213 music industry deals and, 285, 286
Gieselmann, Tom, 160-61 Napster CEO appointment and, 282
Gigabeat, 206-7, 209, 227, 317 resignation of, 304-5
Glabe, Bruce, 82 Hit Men (Dannen), 149
Glaser, Rob, 154, 156, 157 Hoadley, Rob, 25
GlaxoSmithKline, 315 Holland, Dexter, 137, 166
Gnap, 179-80 HoUings, Fritz, 312
Gnutella, 165, 170-75, 185-87, 197, Hollywood
276-77, 309, 314 antipiracy campaign, 311-13
GnutellaMeter, 309 studio system, 168

Godfather of Silicon Valley, The (Rivlin), 111 VCR effects on, 235
Goldberg, Dave, 123 HotWired {h.tci Wired News), 80, 122
Google, 35, 36 Household Bank of Nevada, 47
Gorog, Chris, 306 Hsy.Joe, 219
Gotti, John, 155 Hughes, Mark, 107-8
Gould, Kathryn, 92 Hummer, John, 212, 213, 216, 218-21,
Grammy Awards, 281, 310-11 249, 283, 299, 312
Grand Royal (record label), 165 background of, 218
Grant, Natalie, 281 fiduciary duty warning and, 298
Gratefld Dead, 30, 235 music industry deals and, 250-51
Greene, Michael, 310-11 as Napster board member, 290-91, 292
Greenstein, Seth, 67-69, 109, 316 personal indemnification for, 293, 296-97
Grokster, 309 Hummer Winblad Venture Partners,

Groove Networks Inc., 315 211-21, 316

Grosfeld, Jason, 58-71, 197-98 AOL takeover bid and, 237-38
Grove, Andy, 184, 251 Barry at, 216-17
Guerinot, Jim, 166 John Fanning coup attempt and, 292
Napster funding by, 211-21, 316
post-Napster activities of, 319
H Humphreys, Steve, 194
hackers Hurst, Annette, 229, 231
computer security and, 19-20, 22-23,

142, 322
definition of, 17-18
"Save Napster" movement, 142, 144 "Iam Not Alone" (song), 281
See also wOOvvKDO IBM, 312, 314
Hamilton, Jamie, 25, 80 Idealab, 208
Hanks, Sam, 60 Idei, Nobuyuki, 250
Hanson, Kirk, 193 iMesh, 170, 175-76
Harmon, Steve, 220 Independence Investment, 47
Harwich High School, 6, 14, 15 Indiana University, 141, 142-43
Hatch, Orrin, 154, 162, 255, 279-81, 311 Individual Inc., 79-83, 91
Heinlein, Robert, 25 Industry Standard (publication), 321
Henley, Don, 167-68 Infrasearch, 187-89
Hero Awards, 281 Infravio Inc., 318
Hilbers, Konrad, 282-87, 290, 299 Innovator's Dilemma, T"/6(? (Christensen), 189
bankruptcy deposition of, 303-4 InsiderVC.com, 218
Bertelsmann acquisition bid and, 289-90, Intel Corp., 90, 184, 185, 251, 311, 314,

298, 300, 302 315

( 348 ) index
 intellectual property. See copyright law
International Standards Organization, 31 K
Internet Kan, Gene, 185-90, 280, 323
copyright law and, 2, 31, 64-65, 125, Kay, Martin, 203, 292, 319
224-25 Kazaa, 276-77, 283, 309
digital music availability and, 29, 30-31, Kearby, Gerry, 217, 262-63
153-57, 166-67. See also Napster Kessler, Eddie, 104-5, 116, 171, 178, 183,
peer-to-peer systems, 74, 185, 188-89, 224-25, 246
202, 311, 313-15, 318, 323 on Barry, 269
search engines, 35, 36, 239 replacement of, 283
security issues, 19-20, 22-23, 142, Khosla, Vinod, 90
322 Kim, Sung-Bu, 116,203
See also chat rooms; dot-coms; World King, Carole, 168
Wide Web; specific websites King, Howard, 144, 145
Internet Chess Club (ICC), 44 Klein,Joel, 290, 300, 302
Internet protocols, 236 Klein, Michael, 267
Internet Relay Chat, 17, 24, 34-37, 127, Kleiner Perkins Caufield 8c Byers, 77, 80,
128, 161 90,111,114,206-9
RIAA surveillance of, 161 Knight-Ridder, Inc, 80
slang of, 36 Knowles, Jeff, 230, 232
Internet Underground Music Archive Koogle, Tim, 81
(lUMA), 30-31, 32 Korn (band), 148
Interwoven Inc., 91-93, 94, 194 Kozinksi, Alex, 248-49
lovine, Jimmy, 156-57 Kraus,Joe, 116, 188, 312
IPOs, 154, 210-11, 218-19, 224 Kravitz, Lenny, 159

IRC. See Internet Relay Chat Kraysler, Coreen, 47

Isgro, Joe, 150, 155 Kremen, Gary, 194
ISO-MPEG Audio Layer-3. SeeMP2> Kronfeld, David, 92
lUMA. See Internet Underground Music Kulberg, Inga, 246
Archive

Lathoud, Martin, 131, 132

Jacobs, Brian ("Blaxthos"), 129-30 Launch Media Inc., 123
Jamoulis, Tim, 15 Lawrence, Michael, 136-37
Jeffords, Jim, 281 Leahy, Patrick, 281
Jensen, Lyn, 108, 212, 223, 240, 262 Lee, John, 89, 92, 93, 94, 109, 116, 209,
bankruptcy deposition of, 303-4 317
JK&B Capital, 91, 92 Lehigh University, 22
Jobs, Steve, 323 Lentz, Bob, 81
Joel, Billy, 167 Lessig, Lawrence, 51, 235, 236-37, 241,

Johnson, Daniel, Jr., 242-43 278

Johnson, Ed, 95 Levin, Gerald, 301-2
Johnston, David, 220-21 Levy, Morris, 149, 150
Jones, Day, Reavis & Pogue, 298 Lilienthal, Ben, 27, 57-71, 190
Jorgensen, Dave, 95 LimeWire, 283
Joseph, Bruce, 67 Limp Bizkit (band), 137, 147-48
Joy, Bill, 189, 257 Liquid Audio Inc., 153, 159, 217, 219, 262,
Justice Department, U.S., 152, 313 310
Jxta, 189 Lisson, Steve, 218, 319

index ( 349 )
Listen.com, 144, 153 Mitnick, Kevin, 323
lobbyists, 168, 277, 279-81 Moby (musician), 136

Loporchio, Vin, 41-42 Mohr, Davidow Ventures, 209-10

Lord, Rob, 30, 31, 32, 73, 174, 196-97 Moore, Gordon, 91
Los Angeles Times, 4, 113, 133, 295, 321 Mordo, Nate, 247
Loubani, Tarek, 47, 52, 53-54, 55, 138 Morga, Alicia, 212, 220, 252, 257, 258
Love, Courtney, 136, 168, 257-58 Morissette, Alanis, 33
Lymon, Frankie, 149 Morris, Doug, 156
Lynch,Jim, 61-62, 116-18 Mottola, Tommy, 155
Lynch, Robert, 49-50 movie studios. See Hollywood
Lyttle, Robert, 142 MP2, 30-31
MP3, 8, 17, 29, 153, 170, 196, 237, 242
'HP'
development of, 31-34, 162
M Napster development and, 27, 35, 136,
Macedonia, Michael, 315 142, 143, 161, 162, 239
Mackenzie, Doug, 206, 207-8 as promotion for music acts, 33-34, 137
Macnee, Peter, 198-99 record labels and, 310
Madison, James, 277 RIAA suit against, 67, 279, 316
Madonna, 136 RIAA surveillance of, 161
Mango, Jill, 240 Scott Shinn program and, 73
Markkula Center for Applied Ethics, 193 See also Digital Millenium Copyright Act;
Martin, Evan, 181-82 Winamp
Martin, Jack, 42, 43 MP3.com, 29, 33, 220, 278-79, 280
Matchbox 20 (band), 148 record industry lawsuit against, 278-79
Matthews, Dave, 136 MP3.lycos.com, 29
Mazda RX-7 (car), 185-86 MTV (cable network), 136, 156
McBarron, Brian, 45, 52, 192 Napster and, 119-20, 133-34
McCrae, George, 149 Shawn Fanning's spotlighting by, 247, 323

McDermott, Will & Emery, 67-68 Video Music Awards, 255

McGann, Seth ("Minus"), 19, 36-37, 174-75 Multimedia Engineering Corp., 46
Melissa virus, 19 Murdock, Travis, 123-24, 145

Mendelson, Jordy, 24, 103, 177-78, 185 MusicCity Morpheus, 276-77, 283, 309
message board, Napster, 131-33, 138, 145 music industry. See record industry, specific

Messier, Jean-Marie, 302 groups and performers

MetaUica, suit against Napster, 141-42, MusicNet, 153-57, 285, 287, 310, 313
144-45, 164, 240, 244
Microsoft, 51, 80, 81, 88, 234, 262, 279, W
N
311-12, 313
Microsoft Windows, 35 N2K (music firm), 32
Microsoft Word, 239 Napigator, 170, 180
Middelhoff, Thomas, 161, 250, 285, 286, Napster
321 Back to Basics tour (2000), 137
dismissal of, 302 Bales and, 87, 94
Shawn Fanning and, 261, 265-66, 282, bankruptcy of, 11, 299-300, 303-4, 309
301 Barry's role in, 216-18
Napster acquisition bid and, 289-303 Bertelsmann and, 261, 264-65, 266, 282,
Napster alliance and, 261-67, 273, 282 284-85, 289-303
See also Bertelsmann AG business dysfunction of, 126-27, 137-38,
Mischel, Bill, 46 209, 268-69, 275
Mitchell Silberberg 6c Knupp, 226 CaHfornia base of, 85-87, 98-100

( 350 ) index
campus growth of, 133-35 name origin of, 60
CEO search, 267-68 New Artist Program, 147-48, 209, 227,
Chapter 11 reorganization by, 297-98, 317
300 post-revolution effects of, 309-16
chat room, 127-33, 138 profitabiUty and copyright law, 102-3
cofounding of, 3, 6-7 public opinion on, 135-36
competitors of, 169-90 public relations and, 121-45
copyright law and, 10, 64-69, 102-3, RIAA negotiations and, 122, 123, 160,
138, 141, 142, 143, 238-39, 316 161-64, 286
Ted Cohen and, 159-60, 161 RIAA prehminary hearing and, 240-45
coup attempt by John Fanning, 292-96 RIAA suit against, 124-26, 164, 195
development of, 29-30, 34-39, 85-87 Roxio Inc. acquisition of, 305-7
document shredding at, 240 Senate Judiciary Committee hearings
Draper Atlantic agreement with, 116-18, and, 280-81
208, 255 server Unking and, 171-73, 176-79
Dr. Dre suit against, 141, 240, 244 shareholders, 192-93
drug use at, 108-9 startup hiring at, 87-89, 103-10
due diUgence and, 64 stay of injunction against, 248-49, 268
expansion plans of, 239 stock and stock options, 106-7, 208,
John Fanning as biggest shareholder of, 212-13, 240, 293, 295
9-10, 208 stock transfers, 192-94
John Fanning's approach to, 50-52, strategy document, 101-2, 121-22, 152,
54-55, 58-60, 93-94, 123, 126, 148, 229
162-63, 207, 208, 228, 240, 254-55, technology vs. business issues, 126-27
290-91 user counts, 71, 101, 119, 122, 123,
John Fanning's coup attempt, 292-96, 125-26, 179, 191, 205, 247, 251, 260
298, 299, 305 users banned from, 130-31, 145
FAQ_site, 131-32 user uneasiness about, 142-44
Shawn Fanning and, 5-6, 29-30, 34-39, venture funding and. See subhead
122, 126-30, 137-40, 192, 209, 239 financing of above
Shawn Fanning's vision of, 10-11 voluntary closure of, 276
filtering injunction against, 273-76 Wired Rave Award and, 257
financing for, 6, 8, 9-10, 57-84, 110-12, Napster II, 283-84, 290, 306
190, 191-96, 204-21 Napsterhelp.com, 274
Hilbers appointed CEO of, 282-83 Napster.net, 210, 307
Hummer Winblad Venture Partners and, Napsterstore.com, 140
211-21 Nascent Technologies, 58
incorporation of, 54 National Academy of Recording Arts and
index of other indexes as core of, 34 Sciences, 281, 310-11
internal conflicts and, 148-49 National Center for Missing and Exploited
Uquidation of, 304-7 Children, 137
loan from Bertelsmann to, 264-65, 266, NetCapital, 292, 319, 320, 321
289 Netect Inc., 23
logo of, 60, 137, 138, 166, 307 NetMovies, 203-4, 319, 320, 321
merchandising by, 137-40, 166, 255 NetPD Ltd., 180
message board on, 131-33, 138, 145 Netscape, 11, 31
Metallica suit against, 141-42, 144-45, Nevil,Jack, 42-43, 46, 47
164, 240, 244 New Artist Program, 147-48, 209, 227, 317
music groups and, 136-38, 140-41, New Enterprise Associates, 90, 204-5
147-48, 164-67 NewUn, Scott, 71-72

index (351)
News Direct. See ON24 Inc. music industry copyright abuse and, 287
NewsEdge Corp., 80 Napster preliminary hearing and, 240-45,
New York Times, 133 262
NextPage, Inc, 315 revised injunction issued by, 273-74, 276
Nicks, Stevie, 167 Patterson, Jeff, 30
Northeastern University, 21, 29, 38, 53-54 Paul, Sunil, 60-61
Norton, Stephanie, 148 Paulson, Chad, 134-35, 142-44
NuUsoft Inc., 32, 165, 170, 173-74, 185, Pavarotti, Luciano, 312
186, 257, 258 payola, 149-50
peer-to-peer systems, 74, 185, 188-89, 202,
311, 313-15, 318, 323
PeUiccia, Lydia, 124
OfFspring (band), 137, 166 Pepper, Tom, 186, 187
OHn, Milton, 238, 255, 299 Perkins, Tony, 115
OUver, Cody, 185-86, 187 PerreUi, Jonathon, 26, 38
Olkin, Ingram, 233 Pets.com, 114, 219, 221, 267
ON24 Inc., 87, 95, 220 Petty, Tom, 33, 123
Ong, Peng, 92, 93, 94 Pierce, Brock, 113

OpenNap, 181, 277 Pincus, Mark, 80-81, 294

open-source movement, 75, 179-83, 187, Pittman, Bob, 302
276-77 Pixelon, 112-13
Open Systems Inc., 218 Plaxo Inc., 318
organized crime, 149-50, 155 Polese, Kim, 111
Oseary, Guy, 136 Pressplay, 154, 157-58, 285, 287, 310, 313
"Pretty Fly (for a White Guy)" (song), 166
PricewaterhouseCoopers, 194
Prince (performer), 136
Paez, Richard, 271 Project Thunderball, 265
Palmetto Bug, 23 Public Enemy (band), 136
Parker, Sean, 138, 316 Pulgram, Laurence, 231, 232, 239-40
asthma of, 6, 63
background and personality of, 6-7, 23-27
copyright law and, 66-68, 142
Q
John Fanning coup attempt and, 293, Quote.com, 91, 94-95
294-95
Shawn Fanning meeting with, 17, 24
Fannings and, 70, 193
R

Napster as business and, 37, 55, 57, Racketeer Influenced and Corrupt Organi-
61-62, 67-68, 126, 196 zations Act (RICO), 141
Napster's cofounding by, 3, 6-7, 9, 37 Ramme, Matt, 45, 46
Napster users' questions and, 142-43, 145 Ramos, Carey, 230, 241
on New Artist Program, 148 Rando, Joe, 14, 15-16, 51, 52, 322
post-Napster activities of, 318 Rasala, Richard, 53
resignation from Napster, 253 Rational Software Corp., 79
RIAA suit deposition of, 228-30 Rave Awards (W^/ri?^' magazine), 257-58
server Unking and, 172 RealNetworks Inc., 67, 153-54
Parsons, Richard, 273, 285 RealPlayer, 154, 155
Patel, MarUyn Hall, 224-25, 229, 269, 281, record industry, 149-68, 309
282, 285-86 Big Five, 149, 152-53
appeals court decision and, 271-72 copyright abuse by, 136-37, 149, 287

( 352 ) index
 as factor in Napster's growth, 152 RICO Act, 141
fall in sales by, 310 Rio, 67, 242, 316
Napster New Artist Program and, 148 Ritter, Donald, 21
online music services, 310 Ritter, Jordan ("Nocarrier"), 55
3,
organized crime and, 149-50 background of, 7-8, 21-23
stars' discontent with, 167-68 on Barry, 254
suit against MP3.com by,278-79 California move by, 7-8, 105-6
view of Napster by, 160-61 Evans and, 76-77
See also digital music; Recording Industry on Shawn Fanning, 252
Association of America; specific iMesh hacking by, 176
companies Kan and, 185
Recording Artists Coalition, 167-68 Napster chat room and, 127-29, 130-31
Recording Industry Association of America Napster development and, 36, 37-39,
(RIAA), 67, 74, 160 142
Napster injunction stay and, 248-49, 268 on Napster internal conflicts, 126
Napster negotiations and, 122, 123, 160, Napster position of, 253-55, 258-59
161-64, 286 Napster programming and, 7-8, 37-39,
Nullsoft and, 32 228, 239
on piracy and declining sales, 310 post-Napster activities of, 318
rock bands against Napster and, 140-41 resignation from Napster by, 258-60
suit against MP3.com, 67, 279, 316 "Save Napster" hackers and, 144
suit against Napster, 124-26, 164, server Unking and, 178-79
226-46 user count and, 101
Red Herring {maga.zme), 114, 188-89 Wired Rave Awards and, 257-58
John Fanning cover story, 321 Rival Networks Inc., 220
Redpoint Ventures, 188, 208 RivUn, Gary, 111
ReplayTV, 104 Robertson, Michael, 33, 220, 279, 280
RIAA. See Recording Industry Association Robertson, Thomas Dolby, 34
of America Robey, Josef, 256, 257
Richardson, Eileen, 3 "Rock Your Baby" (record), 149
background of, 8, 87-93 Rogers, Ian, 165, 166, 174-75, 255
Business Week Napster cover story and, Rolling Stone (pubUcation), 150, 166
316-17 Rosen, Hilary, 163-64, 237-38, 245, 252,
John Fanning and, 94, 126, 191-92, 273
194-95, 292, 317 on appeals court decision, 272
Metallica suit and, 141 Hatch and, 280
at Napster, 98-100, 109, 159 Hummer Winblad suit threat by, 293
as Napster interim CEO, 8-9, 87-93 Rosenberg, Andrew, 304
Napster internal conflicts and, 126-27 Roundl Inc., 259-60, 318
Napster merchandising and, 138, 140 Roxio Inc., 305-7, 323
Napster venture funding and, 190, RSI security firm, 36
191-96, 204-11
'mm''
New Artist Program and, 147-48, 317
post-Napster activities of, 316-18 s
public relations strategy of, 121-22, Sacks, Jonathan, 237-38
147-48 St. Thomas Aquinas College, 90
resignation from Napster by, 215 Samit, Jay, 158-59, 160, 161, 164, 284
onRIAA negotiation, 160, 163, 195 SandeU, Scott, 90
RIAA suit deposition of, 226-28 San Jose Mercury News (newspaper), 258
server Unking and, 178 Savenapster.com, 134, 142-44

index ( 353 )
Schmidt, Andreas, 262-64, 284 SpamNet, 318
Schroeder, Mary, 270 Sparks Personnel Services, 71
Schwartz, Jonathan, 285, 298, 299 Spears, Britney, 255, 256, 312
Scientology case, 64 Spencer, Graham, 116, 312
Scott, Adrian, 97-98, 116, 204, 227 Spinner Networks, 73, 153
Scour.com, 29, 239, 301 Sport Service Inc., 140
Seagram Co. Ltd., 249 Stanley, David. See Fenne, Michael
search engines, 35, 36, 239 Stone, Henry, 149
Secure Digital Music Initiative, 63, 284 Stratton, David, 304
Securities and Exchange Commission streaming companies (digital music), 153
(SEC), 72 Stringer, Howard, 250
security, computer. See hackers Students Against University Censorship,
Seele, Mike, 48 134
segmented downloading, 175-76 Suck (webzine), 81
Seidman, Ricki, 254, 273 Summit International, 139
Senate Judiciary Committee, 154, 162, 168, Sun Microsystems Inc., 31, 90, 185, 189,
279-81 257, 314
server linking, 171-72, 176-79 Supreme Court, U.S., 65, 147, 163, 235,
SETI@home, 314 242, 243
Sharan, Sharat, 95-96, 220
shareware, 31, 187. See also peer-to-peer
systems
Sherman, Cary, 246 TheGlobe.com, 112
Shin, Holly, 99, 203, 318 Thielen, Gunther, 302
Shinn, Mike, 26, 72-75 Time (magazine), 1, 10, 256, 264
Shinn, Scott, 26, 38, 72-75 Torvalds, Linus, 51
Silicon Graphics Inc., 31 Total Request Live (MTV), 156
312
Silicon Valley, 19, 87, 94, 311, Turner, Erin, 206-7
peer-to-peer systems and, 313-14
venture capitalists, 8, 9-10, 89-90
Silva, John, 165 u
Silverman, Barry, 248-49 U2 (band), 156
Simulation, Training, and Instrumentation Ugly Mugs, 30
Command, 315 Uhl, Daniel, 247
S/ate (onhne magazine), 248 Ukich, Lars, 141, 144-45, 280-81
Sleator, Danny, 43-45 Unisys, 43
Sleator Games Inc., 43, 45 Universal Music, 149, 154-57, 249, 258,
Smith, Al, 155-56, 157 262, 302, 310
Smith, Howard, 226 universities, Napster's growth in, 133-35
Song, Dug ("Dugsong"), 18, 21, 36, 166, University of California, Santa Cruz, 30, 31
174-75 University of Southern California, 141
segmented downloading and, 175-76 Unix, 20, 257
Sonny Bono Copyright Term Extension Uprizer Inc., 315
Act of 1998, 278 users
Sony, 65, 102, 149, 150, 153, 155, 157 banned from Napster, 130-31, 145
Sorenson, Bill, 284, 291 count on Napster, 71, 101, 119, 122, 123,
bankruptcy deposition of, 303-4 125-26, 179, 191, 205, 252, 260
Soros, George, 91 on post-Gnutella networks, 309-10
Spade, David, 257 UUNet, 25, 26, 38

( 354 ) index
 "Why Do Fools Fall in Love?" (song), 149
Wilson Sonsini Goodrich & Rosati, 67,
Valenti, Jack, 203, 235, 238-39, 313 109-10, 216, 217, 316
ValiCert Inc., 83, 193, 194, 318 Winamp, 31, 32, 73, 170, 196
Vanity Fair (magazine), 256 Winblad, Ann, 211-12, 220
VCRs background of, 218
Napster parallel with 235, 243, 244, 269, Windows (operating system), 35
270, 272 Winter, Johnny, 159
U.S. Supreme Court ruling on, 65, 147, Wired (magazine), 122, 124
163, 235, 242, 243 Rave Awards, 257-58
venture capitalists, 2, 89-90, 191-221 Wired News (formerly Hotwired), 80, 122
due diligence and, 63-64 wOOwOO (online hacker group), 7, 17-20,
Silicon Valley backgrounds of, 6, 8-10, 23, 27, 35-36, 38, 166
89-90, 190 Word text documents, 239
See also specific funds work-for-hire doctrine, 168
Vermeer Technologies, 91 World Wide Web, 29-30, 31, 51, 165, 166
Verrier, Raymond, 14 Wrapster, 132, 180
Verrier, Raymond, Jr., 322
videocassette recorders. See VCRs
Vivendi Universal, 157, 302
Xing Technologies, 30
Xtime, 89, 93, 109, 123-24, 145, 200, 209,
w
318
Wainvwght, Julie, 267
Wall Street Journal, 220
Walsh, Peter, 302, 304
Walter, Ed, 42 Yahoo! Inc., 20, 81, 251
Wang, Charles, 91 Yale University, 141
Ward, Bruce, 180 Yang, Geoff, 208
Wareham, Dean, 165 Yang, Jerry, 251
warez (pirated software), 36, 103 Yoakam, Dwight, 167
Warner Brothers (record company), 33,
149, 153, 156, 157
Webby Awards, 211
Webnoize (magazine), 124, 223 Zachary, George, 210
digital music conference, 159-60 ZDNet, 110
Weekly, David, 32-33, 183 Zelnick, Strauss, 263-66
Ween (band), 167 Zero Gravity (Harmon), 220
Weil, Gotshal & Manges, 64 Zero Gravity Internet Group, 220
Weir, Bob, 30 Zero- Knowledge Systems Inc., 183-84
WheelGroup Corp., 72, 74 Zero.net, 76

index ( 355 )
 About the Author

Joseph Menn has tracked Silicon Valley for the Los Angeles Times for
more than four years. He is coauthor of The People vs. Big Tobacco: How
the States Took on the Cigarette Giants (1998) and a principal editor of The
Chronology: The Documented Day-by-Day Account of the Secret Military

Assistance to Iran and the Contras (1987) and worked for Bloomberg News
and the Charlotte (N.C.) Observer. He grew up in suburban Boston and
was executive editor of the Harvard Crimson as an undergraduate. He
lives in San Francisco with his wife and daughter.