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major risks of Bertelsmann’s involvement, the experts wrote: “How do we avoid liability for old and ongoing copyright infringements? [Bertelsmann] 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 consultants 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 subscribers 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, telling 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 like 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 relationship in terms of deals and trying to get licenses and security and stuff. Those were all new issues for me that took a while to get comfortable

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