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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 million 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 million settlement with the major labels. Like the aborted
AOL-EMI deal, the resolution would have allowed Bertelsmann to con-
vert its warrants and take full 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 future 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 credibility at the bargaining
table. “Clearly Konrad was not speaking with any authority, and the rules

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