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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 Sonsini. And Hummer Winblad had funded Liquid Audio. So Kearby helpfully passed on Barry's phone number.

It was also around then that Middelhoff and Schmidt discussed the potential for a Napster settlement with a discouraged Bronfman. Middelhoff and Schmidt left the meeting thinking there was some kind of deal possible, that Bronfman just wasn't seeing it. Schmidt called Barry, leaving 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 purchase, it should simply wait for Napster to go bankrupt, then buy the assets for pennies in court. Schmidt said that Napster wouldn't go bankrupt 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

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