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the event that Napster lost the court case. But since Napster wasn't operational, 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 outright, 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 Bertelsmann 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 technology 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 former 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. Hummer 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

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