Continuing on my digital music packaging discussion. I thought I would talk about the potential market for these packages.

“What’s your market,” asks the VC?

“The people who bought CDs,” is my answer.

“No one buys CDs anymore,” they retort.

“That’s why there is a market for digital music packages,” I reply.

Why we bought music packages?

As I pointed out in my previous post, people* bought vinyl, tape, and CDs for 3 primary reasons:

1. Convenience, which included listening on-demand, portability (tapes), durability (CDs), and acquisition (MP3s)
2. Collectablity. These music packages were expressions of who we were and our social status.
3. Connection. Albums and CDs connected us with the artists and bands we loved.

*Who are these people who bought albums?

Well in the 1990s buyers of CDs were roughly15-20% of the population in North America. That’s buying one (1) CD or more in any given year. During the 90s I bought on average 60 CDs per year. People like Ian Rogers bought 60 in a month! I would fathom a guess that I would represent 1% of the population. Ian Rogers 1/100th of 1%?

“Well that doesn’t seem like much” , says the VC?

“Well that represents *about $8 billion in yearly NA sales,” I say.

*Note: After reading a number of IFPI reports I have no confidence in their numbers. They just don’t add up from year to year. A colleague of mine believes it is a result of their somewhat erratic methods of data collection.

Let’s break up the market

The market is made up of:
Insiders – musicians, reviewers, industry. These guys and gals don’t buy music. Ok, I know a few do, but we can assume it is VERY small over all. The industry does not run on musicians selling to other musicians. (Then again. I think it does in the local Vancouver indie scene.)

Fans - these are people like myself who bought more than 1 CD per year and supported the recorded music industry. These are the people who buy for Collecting and Connecting. However, when looking at this group, I would say you probably are not a fan if you purchase less than 3 CDs in a year. So let’s extract those who bought only 1 or 2 CDs per year. I call these people…

Consumers - I know a lot of these people. You do, too. These people bought CDs for convenience to play in their car, or during parties, or what-have-you. They didn’t follow the artists they purchased. It was about listening to music they liked (or was popular) when they wanted it. As such this group is unlikely to buy digital music packages. I do not know what percentage of the market this group represents other than from some ad hoc surveys we conducted. If anyone has some research on it, I’d love to hear from you.

Public - these people did not buy CDs in a given year. They represent most of the people you will ever meet in your life. We love them. They are mothers, fathers, sisters, brothers, and friends, but they don’t buy music. Interestingly the industry wants to monetize them unwillingly in a number of horrible culture tax schemes. I will leave that for another post.

Below is a diagram illustrating the potential market for digital music packages. The biggest hole as I pointed out is what percentage do music consumers represent verus the music fans.

BTW. I actually didn’t recognize that the diagram looked like a CD until my colleague Seamus pointed it out. So Loren quickly re-authored it. :)

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.