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Of the media barons, Middelhoff was 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 development 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 Bertelsmann 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 a new 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 really 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 Fanning 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 like 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.”

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