For Christmas of 2005, I bought Barenaked on a Stick. It was a USB stick that contained songs mostly from their Barenaked For The Holidays album.

The music was in MP3 format and the USB stick also included videos, live recordings, some of their famous onstage banter, pics, liner notes, and animated GIF buddy icons. The actually physical packaging was pretty sparse and utilitarian as you can see. The price point was $40.00. That’s pretty expensive compared to CDs. However, this package wasn’t for the public or casual music consumers it was for fans. Fans bought it and it sold out.

"Barenaked on a Stick" sold out despite only being sold online and at the live shows. It seemed record stores had no clue on how to stock the item. Get that, a music store has the opportunity to sell a music product with a $40 price point, but chooses not too since they cannot figure out how to stock it. Even Amazon wasn’t sure what to do with it. They put it in the electronics section not surprisingly the same place where blank CDs are sold.

So music on a CD or DVD is sold in the music or entertainment sections of a store not in electronics where blank CDs or DVDs are sold. Yet, music on a USB stick is sold in electronics. If you stop and think about it, this situation reveals a lot about why recorded music industry has struggled. They forgot what it was that they actually were selling.

Anyway, I had a pretty high sense of satisfaction after I bought it. I read the liner notes, and actually used the pics on the stick as my computer screensaver slideshow. I watched the videos and listened to the banter a few times, but once I had moved the music to iTunes and my iPod, I never consumed the media that came with the USB stick again. The screensaver has changed and the actual USB stick is long gone now, too.

My music is now completely divorced from the packaging that I had paid for. Naturally, it would be great if I had that content easily accessibly to me whenever I wanted (on any device). Which is likely whenever listened to Barenaked For The Holidays. This is the simplest reason why I believe that music packaging needs to be offered as both local files and as a service.

When Ian Rogers posted his Aspen presentation, I received a lot of requests asking to see what we are building and how they could implement it. That’s pretty exciting, but I wonder how many people have actually thought what a package actually means. Although it is too early to show what we are working on, I think its past time we start talking about it more openly.

First, I think it is important to talk about why we began pursuing an open packaging format for music in the first place. My company, Project Opus, originally began as a service for independent music artists and entertainers to self-publish and distributes their own music with a focus toward ‘local music’. Our intent was to further develop the social networking tools for the filtering of music on the site: mine the long tail if you will. We even built one of the first embeddable music widgets for selling digital downloads.

No one values digital audio files

This seemed like a smart approach, and I think it still is in some respects. Except, I discovered that the economics of offering digital music for sale simply were not there no matter how you slice it. Add to that the fact that many new artists are simply choosing to give their music away. They need to get heard, and let’s face it that makes sense for new artists. I cannot argue against it.

Market forces are driving the price point of digital audio files down towards a marginal price. Note I am not using the term music – it is my opinion that people clearly value music. People just don’t value the format it is being delivered in anymore.

Why are consumers not valuing the audio files?

To understand this I think we need to look at recorded material we did value. In my opinion recorded music purchases are about experiences. Until recently recorded music has always had a package that enhanced a fans experience.

First there was vinyl.

1. Convenience. I can listen to my favourite music on demand. This was the most important reason I bought an album. Convenience trumps everything.
2. Collectablity. It is an expression of who I am and my social status.
3. Connection. with the artist or band. Albums included liner notes, pictures, notes, artwork, poetry, rants, stickers, etc.

The Dark Side of the Moon was one of the first albums I ever bought.

Then there was 8-track and cassette.

Tapes significantly reduced the quantity and quality of the “stuff” that connect me with artists, but it added a new element:

4. Portability. I could take my music with me. I could share my music with my friends more readily, which made them more collectable. Portability also enhanced convenience. Flipping through cassettes in your car or home was easy. You could be a bit rougher and less careful with a tape than with vinyl.

I bought The Dark Side of the Moon in 8-track. That was a mistake. I bought it again as Cassette.

Then there was CDs.

CDs provided the same as a cassette, but they also introduced:
5. Durability. I had friends who had bought the same piece of Vinyl or Cassette multiple times. We thought CDs were unbreakable and forever.

I bought The Dark Side of the Moon in CD as my cassette was worn out and sun bleached.

Now, I know many people would argue that CDs also provided consumers with an improvement in fidelity. Although true, I would argue that was not the reason for the global consumer adoption of CDs. Clearly, fidelity took a hit with the move from vinyl to tape, but that did not stop their adoption. A lesson should have been learned here convenience trumps fidelity, too.

Then there was MP3s

This lesson was ultimately learned with the MP3 revolution. Which introduced another element to convenience:
6. Ease of acquisition. I could get a song within moments of hearing it for the first time. Through official routes are still difficult, which just pisses us off.

MP3s are the definition of convenience and convenience trumps everything. However, in the consumer conversion to MP3s everything else around music has been completely stripped away. We are left with just a file on our hard drives with a thousand others.

I DID NOT buy The Dark Side of the Moon as a digital download.

Why are people less likely to pay for music – even though they have ultimate convenience?

People will pay for convenience but when the cost of delivering convenience is near free. That will be the price. But for many of us recorded music is something more than just the audio file. What of collecting and connecting? Mp3s do not provide:
- collectablity. Everyone can have an MP3 so how can it be collectable or be a reflection of me?
- connection. MP3s have been stripped of all contexts. It’s just a file on my hard drive.

It’s time that we reintroduce these two characteristics to the recorded music experience. However in doing so, we need to remember that convenience trumps everything.

If we get it right I will buy The Dark Side of the Moon again.

Yahoo! Music's Ian Rogers posted his presentation from THE ASPEN LIVE CONFERENCE

It has already caused quite a stir - picked up by:
Bob Lefsetz
Tech Crunch
Read Write Web
Mathew Ingram

Ian has been a big supporter of what we are doing at Project Opus - in particular our DYLAN project which has transformed into what we are now calling JAMM. He was a big help in getting our funding to research music packaging experiences. He illustrates a simple use case using my favourite band, Pink Floyd. However, JAMM like other open media and play the web technologies is a much more than what was described.

This has been a process of discovery for close to 2 years for us, and we actually don't assume that we have the perfect solution. In fact until other companies and individuals start sharing their ideas and working together there simply is not going to be a solution. Having said that and considering the mass amount of e-mail Ian's post has generated to my in-box, I think it is about time we start talking about our thoughts and experiences on this subject, and what is needed to pull it off.

I've given presentations on this issue for over a year now, and usually get "It will never happen, the industry will never go for it. Content authoring must be controlled. How do I get my 50%?"

BAH!

Thanks Ian and Lucas for exposing our work and finally bring the industry eyes to this issue. Fun times ahead.

My company, Project Opus, will be releasing a new music service this week (cue wood knocking). It is quite a diversion from our original business, so I thought it might be useful to discuss our corporate change in direction before the launch. I think it might also serve as a helpful story for others trying to find their way in this industry. Sadly it is a bit too late for Snocap.

Big Opportunity In Music
We started Project Opus in 2004 with quite a bit of piss and vinegar. We really thought we were going to change the music industry. Let's chalk that up to youthful hubris or plain old ignorance, but there was great opportunity upon us. Major labels were rapidly losing their monopoly on distribution, and young new artists were able to use internet technologies to find an audience (no matter how niche) without a label deal. Our goal was to build a website that would enable artists to upload and sell their music. Fans would be able to listen to full tracks in MONO, and if they liked the music they could then buy the tracks in stereo. We thought the full track mono was better than 30 second samples, since indie bands and their music are relatively unknown.

Mission: Build music self-distribution website

Our first issue - unknown music needs to be heard
This was the first problem we ran into. We got dozens of e-mails a week from bands telling us they HATED the mono tracks. They couldn't stand how they sounded. Still others would say they could hear no difference for 99% of the tracks on the site and wanted to have 30 second samples. To the pro-stereo contingent, I would say, "why would anyone buy the songs if you are giving them away". To the 30 second advocates, I would say, "why would someone buy an unknown song from an unknown band based on a 30 second clip? Do you write 30 second songs?" I convinced most of the bands who complained to stick it out with us in mono. Though a few bands from both sides did leave in protest. The other issue was that fans needed an easy way to share music. This was a relatively easy decision as we adopted podcasting and XSPF.

Solution: Give mono tracks for free. Standardize on XSPF and podcasting for sharing.

Our second Issue - fans want access to everything.
Our beta site was launched in fall of 2005, and our present site was launched in spring 2006. We had the first (as far as we knew) flash based store widget (Opus Player) for selling music. We were getting quite a good number of quality bands to sign up, and we were getting some great community dialog from the bands. They liked the site. However, the fans were really nowhere to be seen. They were signing up to the site and then leaving. When we asked fans why they were leaving, many simply said that their favourite indie music was not on the site or that it was too hard to find music that they might like.

I had contacted Felix Miller (Last.FM) in 2005 to license Audioscrobler. We used Audioscrobler in our own simple algorithm to enabled "unknown" Project Opus music to show up as recommendations based on searches for any known/famous artists. It was based on using artist metadata for "sounds like" and "influenced by". Surprisingly, many independent artists are loath to fill out such metadata even when it will help them be found. Heaven forbid someone sounds like Nickelback?!? But a bigger issue was that we still didn't have enough tracks for the search engine to really work, and not show frequent null results. We needed more music, fast. We needed to go get a music library.

Solution: Close a deal with two music aggregators and get over a million songs onto our site

Our third issue - the economics of selling audio tracks is dismal
So in the summer of 2006, we entered into negotiations to license the libraries of two major and very large music aggregators. A digital music aggregator is a company that gets exclusive licenses from independent artists and labels to distribute their music to online retailers. The idea is that iTunes, Yahoo, Rhapsody, et al. don't really want to deal with tens of thousands of artists on a one-to-one basis. They would rather deal with just a few companies representing a large portion of artists. Conversely artist don't have to deal with the dozens of online retailers. They just need to deal with one aggregator and their music will be available on all the major services.

It all makes sense, but let me assure you that closing a deal with an aggregator is a very long process unless you sign their "starting terms", which are laughable. I am not able to go into details, I wish I could, because someone needs to talk about some of the absolute idiocy involved. However, I can say that there is a substantial fee for just doing the deal. As far as I know none of that upfront fee actually goes to the artists they represent. The aggregators I was talking to require that I pay for each encoding of the song. Meaning if I wanted to offer MP3s, Ogg Vorbis, and AAC I would pay more than if I just offered MP3s. There was also a minimum monthly fee if we did not sell enough of the aggregators music. However, what really got me was that none of the aggregators actually had a Web service that our store could hook into. We actually were told to send hard drives to their offices. Naturally, there was a fee for their labour to manually transfer the files over to our drives and then send them back. Here, you can do the math: a 4 minute song and let's be kind and say it is roughly 5 MB for the MP3, Ogg, and AAC each. Realtime transcoding is not allowed. You must have all three pre-encoded if you want to offer them. So for 3 formats of a 4 minutes song it's 15 MB of disk space. Now, we were negotiating deals for over 1 million songs. That's 15 million MB or about 15 terabytes. In reality we were negotiating a total of 1.4 million songs and the average song was larger than 5 MB. I don't need to go into too much more detail, but suffice it to say I would need plenty of infrastructure.

Fortunately as we were about to sign the deals in late 2006, we were beginning to understand own music numbers at Project Opus. They weren't what we had hoped for. The listen to purchase ratio for our top artists was 1/2 of 1 percent. This means a song was listened to 200 times before it was purchased. The site overall was closer to 350 to 1. About 40% of our library was purchased over a 9 month period (53% prorated over 12 months). So taking our aggregators 1 million songs, and assuming that we got a 100% of the library sold in 1 year. That's 1,000,000 songs; 1 million dollars in revenue. Less royalties which are over 70 cents, less transaction fees of 10 cents and we have 20 cents gross. Then we have bandwidth, infrastructure (servers/hard drives), and labour. There simply is NO money to be made selling an audio file. Even if we increased our turn from 100% to 200% to 1000% the numbers simply would NEVER add up. However, I think the lower estimates are more accurate.The margins were simply too small to license an aggregator's library.

Solution: Kill the aggregator deals.

Our fourth issue - no one LIKES buying audio files
It became clear soon after that our launch that our listen to buy ratio was way lower than we anticipated. People were obviously listening to songs. Some artists get 100s of listens a day but with very few sales to be had. We talked to a dozen people why they had not bought songs, but are actively creating and listening to playlists. In general they said, "Since artists know when a song is in a playlist, I use the playlists to tell them and my friends that I like their music. For the most part I support the artist by going to their shows or buying their CDs at the gig." Clearly, the audio track does not have significant tangible value for the fan. It represents a connection to the artist and a reflection of their personal taste.

Would it be different if we kept the songs to 30 seconds instead of full length? The answer was an emphatic, no. It would in fact, keep them from coming to the site in the future, and keep them from discovering the bands around town they hadn't bothered to previously check out.

Solution: Provide songs in stereo to give best experience, and figure out what we can do to enhance the value of music

(*I should also note that there is economic pressure that implies that MP3s will be priced at the margins, which means near the cost of delivery - think pennies.)

Our fifth issue - how can we enhance the value of an audio file?
Our focus for the last year has been to research technologies and explore business models that add value to digital audio files. I make a distinction between audio files and music. Music has enormous value, without question. The question is does a digital audio file have value anymore. We think it does. We do not believe an MP3 is just a loss leader to get people into a live concert or buy a t-shirt. Recorded music has value and it is not going to disappear. As such there must be economic models to support it. Models that do not rely on controlling distribution through DRM.

As far as we are concerned, figuring out how to find the value in recorded music is the most important issue that needs to be solved today. There are tons of quality recommendation engines out there, but what value are they if there is no economic model for supporting the music that is being recommended?

Solution: Still working on it.

Yahoo's Music's Head Honcho, Ian Rogers, recently posted a blog that has got me all fired up again. Thank's Ian. He's rightly upset at the music industry and he is not going to take it anymore. AMEN.

Let's all stop pussy-footing around the issues and let's make the tough decisions to deal with them. I want to bring up what I think are 4 fundamental rules for succeeding in selling recorded music. First, here are the facts. Music distribution cannot be controlled. If you think otherwise - you are wrong. You should pack up and go home. The world has passed you by and you're either too stupid or lazy to GET IT. Technology has changed the music industry AGAIN, and if you are a music exec you MUST adapt to it. Granted this is hard to do if you happen to be a lawyer. Which brings me to:

RULE #1 for thriving in the new music economy: If your company is headed by or overly influenced by a lawyer, fire him! These people support business strategy - they don't guide it. The fact that so many lawyers are top executives in the record industry is probably the biggest reason the recorded music industry is in the shitter like it is.

Lawyers will simply NEVER get their head around the facts which was originally rule #1, but got moved to rule #2, when I realized we had to get rid of the lawyers first. So, if you want to survive in the next 18 months let alone 50 years - you have to embrace this reality:

RULE #2: You have no control over music distribution.

You don't. ALL RECORDED MUSIC EVER MADE is now sitting on hard drives and flash memory sticks around the globe. The Internet exists. As the world gets more wired with near-free wireless internet access music will eventually flow like water as, Gerd Leonard likes to say. The vast majority of new bands are now offering their music freely on sites like MySpace, Project Opus, and Garage Band to their fans. They want it heard.

The reality of Rule #2 unfortunaltey has a nasty outcome that people really don't want to come to terms with either. Even though we are witnessing it today!

RULE #3: The value of an audio file will approach the cost of delivery. The cost of delivery is our Internet conectivity, which as I mentioned is approaching near zero.

Rule # 3 is the reason the RIAA is suing people. If people can get a song for free, they eventually will. It is already almost as easy and as reliable to browse and download from P2P networks as it is from iTunes or Amazon. When the convenience gap closes between the "illegal - free" versus the "legitimate - $" modes of music distribution, we would be naive to assume that a significant proportion of the population will not use the "free' alternative.

So we sue. Perhaps fear will keep music fans in-line and buying from the legitimate music sources. This "suing-thing" has been going on for 8 years and well the recorded music industry is closer to DEAD today than it was then. Suing music consumers has not changed anything and it WILL NOT save this industry. It's a strategy dreamed up by a lawyer. PLEASE, go see RULE #1.

RULE #4: Know what you are selling. And it ain't audio files. It's music experiences.

Music executives - which are mostly lawyers think they are selling audio files. They would be wrong. Let's remember that audio has for the most part ALWAYS been free for the fan. We listened to radio and got mixed tapes/CDs from friends. Yet, my generation was the largest purchasers of music in the industry's history. We bought music that we generally already had free access to. Why?

1. Convenience. If we bought the vinyl or the CD, we could listen to my favorite songs on demand.
2. Social interaction. Back in the eighties and nineties, listening to music was almost always a social interaction. Buying a new album or CD was a reason to invite your friends over. We listened together. We shared the experience.
3. Packaging. We got something else other than the music. We got stuff like liner notes, and artwork, but more than that, too. KISS ARMY, you know what I'm talking about! Hey, even Led Zeppelin's last album had an album sleeve that changed colour if you added water. It wasn't advertised, I FOUND it, which made it cooler than perhaps it was.
4. Connection. The social interaction and packaging gave us something else. Connection. We were more connected with the artists work, and subsequently with the artists themselves.

The above provided CONTEXT and CONVENIENCE to our music. It is WHY we bought music.

P2P, MP3s, and the iPod have improved convenience dramatically. How could we have been prepared for it? We had no idea how inconvenient it was to get music until it was at our finger tips. In our stampede for convenience, we have ripped all context out of music. Music files on our hard drives are devoid of context. Social interaction around our music has declined with the iPod's earbuds. We have no tangible stuff around our music. Without context music is missing much of the value. It is more disposable.

We still want context. We just don't want to give up our convenience to get it. Make buying music valuable - not because distribution is controlled, but because you are giving me a music experience. This is what we want and we will BUY it. Ian Rogers at Yahoo! is looking for it, and in doing so he has given a polite finger to the industry's lawyers. If we embrace technology rather than fight it, we can create experiences that will make those KISS ARMY tats seem cheesy in comparison, and those were cool!