Digital Music: a collective failure of imagination

Analysis It's about 10 years since I rigged up dynamic DNS in my apartment in San Francisco so I could play my music library remotely. I suspect many of you have tried something similar, and many more have subsequently used Orb or a Slingbox to achieve the same goal.

This was before the iPod, and it seemed like a good idea at the time.

The Ophelia Wimsys of the world (and I'm typically called up by a TV or radio producer Pandora or Arabella and a vaguely-familiar-somehow surname, suggesting that the media is now truly a hereditary occupation) incessantly tell us that the World Wide Web is a hotbed of innovation. Perhaps the hottest hotbed in the known universe. Certainly the hottest anyone has ever known. But it's really much less exciting than that, as I will explain.

Being a "web innovator" for the past dozen years has simply involved taking tools and services that had already been invented, but that weren't on the web, and putting angle brackets around them. So irc (b.1988) became IM (b.1996) and Twitter (b.2007), AOL chat rooms became php-powered forums and blogs. Online storage became, er ... online storage. Ooops, sorry: The Cloud!

I don't want to sound like a snob, for it is certainly significant when something goes from a million users to a billion users. But let's not forget where innovation comes from: the web's well of ripping off older ideas appears to be truly exhausted now. And let's remember where value is created: from real inventions that solve really hard problems.

This week Google launched a music service, and it has been whining to anyone who will listen about the kind of music service it would like to have launched, if only it had been allowed to do so. The interesting thing about this is that it's just as dull as the one it did launch as a Private Beta this week. Google says it would have liked to sell music in MP3 format – like iTunes, Amazon, 7Digital, and one or two thousand more such services. Google also wanted to have a library of music that you could already listen to once you signed up – like Pandora, Rhapsody, Spotify, We7, Rdio, and several hundred more streaming services.

Well, that would have packed 'em in. Don't you think?

It's not as if the Pirate wing is any more innovative. It isn't. The first, 1999-vintage Napster was terrific, but its P2P successors were simply slow, buggy clones of the original. I can't think of anything new and interesting since Bram Cohen created BitTorrent, and the services haven't added anything to his innovation: unless getting Viagra ads or solicitations of marriage from Ukrainian teenagers is your idea of innovation. Unlicensed music doesn't have to be any more innovative, because there's no incentive for them to bust a gut trying - the punters will wander in because it's free. You get what you pay for.

The strange impasse we find ourselves now in means very little is being launched, or created, and plenty of money stays in plenty of pockets. It's all a bit crappy.

It's easy for me to say, as something of a technology libertarian, but why isn't every technology being used by music innovators to try and get us to part with our money? What is needed is lots of radical experimentation - particularly in the area of pricing.

Price matters because it's the most direct way of showing your appreciation of an artist, short of lingering backstage with a bucket of plastercast (NSFW). Because we can already listen to pretty much anything we want for free, we're awash with stuff; paying for something shows it matters to you. It puts down a little marker. Withholding your money from an artist you think has lost the plot is an equally valid proposition. People who like music have never had a problem with paying for it: the chorus of "free" always seems to come from people who don't.

The problem is that digital music is both too expensive and too cheap. It's a fraction of the relative cost it was when I was at school, and one new album was around four days' accumulated dinner money. (See, it's not just artists who starve!). Now, an album is little more than the cost of one lunch from the cheapo sandwich shop. It isn't much more than a milky coffee, come to think of it. Music has fallen in price over 40 years as much as anything else.

But looking at the BPI stats today shows that perhaps half the value that could be captured isn't being captured. Perhaps it's much more, perhaps not, and it will never be the size it was when it could ration scarcity, and had exclusive control over supply and pricing. I tend to be more optimistic, since consumer spending power on leisure stuff has increased, but the desire for music hasn't diminished.

One rod the industry has made for its own back is uniform pricing. It seems fearful to experiment, lest this should fall. Two years ago, two economists at the Wharton Business School did some interesting research. It bore out the idea that music should be both cheaper and more expensive, at the same time. How so?

Well for a hit, students would pay as much as $2.30 per song. 99 cents was too cheap for that song at that moment. But this didn't necessarily translate into greater returns. The researchers found that by charging both an entry fee and a fixed price, of 37 cents per song, they maximised revenues. The Economist has a nice summary here.

This is just one of the experiments that should be tried, but isn't.

Even more interesting would be the idea of a virtual music currency, like Green Shield Stamps. You could trade this between services, taking a bucket of tokens from one to another. It has two great advantages for us and the producers. It would give us the idea that we weren't paying directly for something – getting away from that "too expensive, too cheap" conundrum. It would give the suppliers a lot of insight into what people actually do. It would give them the freedom to experiment on wholesale pricing much more than they are willing to today.

Of course, there are costs attached to any derivative, and any currency attracts counterfeiters. But my experience of services where you can both declare preferences, but don't have a monetary counter ticking away, is a good one. Time is not on the side of the record industry anymore. ®