As promised, here is one of my entries for The Great Recording Industry Business Model Contest.

I’ve given this a lot of long hard thought. I have a model for the future of music (its still being tweaked), but to me the more fascinating model is the one a pouting and recalcitrant industry let slip away 4 years ago: the “missed opportunity/cooption” model. The industry’s failure to adopt this model led to the present strategy, ignominiously centered upon suing 12 year girls and 71 year old grandmothers.

Here’s the “missed opportunity” model:

The industry had a golden opportunity to establish the “cooption model,” working with Napster as a centralized downloading center. This involved a jiu jitsu of the Napster sharing framework. The goal of the model would be to turn the Napster network into a massive data mining / advertising promotion / sales machine.

Each aspect of this model emphasizes the accumulation, analysis and application of consumer music data. The first goal would be to find out a) what people are listening to; b) what else they might want to listen to; and c) extending their relationships with the artists whose music they appreciate.

One of the best aspects of the Napster framework was user’s ability to peruse other people’s hard drives. Tracking downloading habits relative to that data could have been enormously powerful.

Amazon uses a simple “Customers who bought this book also bought” method to drive recommendations. That’s an exceedingly simple, non-relational data base approach. A coopted Napster could have created a much more sophisticated, Google-like page rank system, filled with rules such as multi dimensional rules: User “Likes the Beatles and Rolling Stones, but also has jazz and some hip hop but no country music, therefore: __________.” TiVo uses a dumbed down version of this approach to make recommendations.

This algorithm should have been the holy grail for the industry, and would have created a powerful methodology for recommending new music and driving new sales. Napster would have been more like a multi-user programmed FM radio. Ideally, the Napster download medium would be of a lower burn quality (ripped at 128kps), somewhere between AM and FM. Napster traders would only be able to download these modest fidelity versions.

Considering that the industry now pays firms (such as Bigchampagne) fees upwards of $40,000 per month for data not nearly as rich or informative, this model also makes financial sense for the industry.

The last aspect involves the conversion of downloaders to buyers. This would be aided in part by giving music fans an additional incentive to purchase an old school, manufactured and shipped polycarbonate disc, or in the alternative, download a higher quality MP3. There are many ways this could be done: CDs should be sold with both traditional tracks, and MP3s for Napster. Moving them to your hard drive encourages promotional downloads. Higher quality, non Napster MP3s (i.e., Apple’s AAC) should also be on the disc. There has been some gradual progress made in adding videos, unique tracks, live or acoustic versions accessible over the net only with a purchased CD in the tray. The same incentives could be provided to those who bought internet based tracks. Album art, lyrics, etc, would only be available to those who legitimately paid for their music.

Here’s a real life example: I’m a big Steely Dan fan; One day using Napster, I’m perusing someone’s hard drive, and see a bunch of Dan covers. I learn the sound track to the 2000 Jim Carrey film “Me, Myself & Irene” is all covers of Steely Dan classics. I download a few, like it, and order the full CD; I discover a previously unknown band, “The Push Stars,” who do a kickass cover of “Bad Sneakers.” A few more Push Star downloads, and I find a killer song “Drunk is Better than Dead.” (Incidentally, I end up renting the movie ‘cause of the soundtrack, which I might not have otherwise done).

All told, I end up buying a soundtrack, 3 Push Star discs, and a Ben Folds disc (he does a nice cover of Barrytown). 5 CDs (and a film rental) from what started as one download. That’s the promotional power of a Napster like, centralized download facility. And that’s the opportunity which the industry let slip away . . .

Further Reading:

What Price Downloads?

BigChampagne is Watching You

http://www.wired.com/wired/archive/11.10/fileshare.html

Recording industry’s missteps

http://www.denverpost.com/Stories/0,1413,36~78~1626541,00.html

The RIAA and the destruction of value

http://www.pacificavc.com/blog/2003/09/12.html#a353

The Music Industry Will Miss Napster

http://www.shirky.com/writings/napster_wsj.html

Category: Current Affairs, Media, Music, Web/Tech

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “The Napster Cooption Business Model”

  1. Beth says:

    What I can’t comprehend in this age of the internet and all the ideas and information out there – is why CEOs and politicans don’t take more advantage of all of it. When do the idea people (in this case bloggers) hook up with the in charge people??

  2. Rob says:

    Barry,
    Very impressive. I think if you had been CEO of a music company a few years ago, your company would be leading in market share with this kind of plan.

    Beth,
    Despite all the time we spend in the blogosphere, it is strange to think most people have never heard of it. I agree, CEOs and “in charge” people need to get with it and embrace bloggers.

  3. A New Model for the Recording Industry

    Barry Ritholtz has a very good entry for the Great Recording Industry Business Model Contest.The industry had a golden opportunity to establish the “cooption model,”…

  4. Beth says:

    True Rob, I figure out of 100 employees in the office I’m in, I’d bet $100 I’m the only one who reads blogs, much less has one. And maybe CEOs are “too busy” to surf the net to find entries like this – but smart ones will hire someone to do that for them! Hey – that’s how us poor bloggers can make money – hire ourselves out as idea researchers!

  5. Doug says:

    Barry -

    Very insightful analysis. Kudos.

    You may like to check out MusicMatch.com to see how they are implementing a (vaguely) similar idea in their music subscription service. It lacks the “community” aspect, and the intense analysis dimension but it at does suggest similar artists, and allows you to create a very diverse radio-replacement. Compared to MSN’s feeble attempt, they are a company that appears to be thinking. (Perhaps you can show them how to take it even farther …)

    Also, a comment on your blog (also nicely done, BTW)
    Looking at your reading suggestions, I recommend these two to you as something you may enjoy.
    http://www.libertarianpress.com/rothbard/essential/toc.htm and

    http://www.mises.org/humanaction.asp

    Doug

  6. $$

    The Big Picture has a fantastic post on how record companies could have revamped their business model and made a

  7. Anon E Moose says:

    I believe that BigChampagne already has the ability to do things such as:

    “User “Likes the Beatles and Rolling Stones, but also has jazz and some hip hop but no country music, therefore: __________.””

    I saw a brief demonstration of their technology and services and I think I remember seeing things like that. I could be wrong though, I’m not really a tech person.