The solution to making money in the music business is to kill the MP3 and any other single-purpose file format used by the music industry.

The industry will return to profitability when we put bundled digital packages into the marketplace.  

I am going to use the graph below to illustrate what I mean.

Prior to 2000, the primary focus of the recorded music industry was on everything prior to MUSIC ACQUISITION.  Record labels were staffed, and resources were allocated to find great songs and talented artists; to create great records; to build global distribution; and to promote all the way through retail.  Very little consideration was given to post-acquisition fan-activities.

From 2003 through 2006, the demise of the CD accelerated; distribution and retail were merging into iTunes; and labels were beginning to dabble in post-acquisition promotion, which is the process of aiding consumers in their efforts to be passionate about music after the sale.  You can witness labels engaging in this activity on sites like MySpace and Last.fm.
 
By 2006, the ball had moved.  A MAJORITY of consumers had become skilled in the art of using the Internet to hunt, test drive and research music.  Blog sites, television shows, video games, films and even commercials were becoming the music promotion vehicles that drove fans to digital music stores.  Moreover, a new set of post-purchase activities had become indivisible from digital music.

Fans were no longer satisfied with just obtaining an MP3; they were now looking for and acquiring lyrics, videos, ringtones and images.  They were trafficking the MySpace pages of artists, sharing music, promoting music, and organizing and backing-up their collections.  In addition, fans were now purchasing tickets to see bands they had discovered on the Internet.   
 
The problem is: all of the activities that consumers do in 2006-2007, from HUNTING through TICKETING, are discrete actions that not only require an investment in time by consumers, but each one of these activities has it’s own revenue model, transaction system, layer cake, value chain and consequences.  As a result, the recorded music industry is cut out of 50% of the activity silo, and the other 50% is bloated with too many fingers dipping into a low-margin pie.

Just for giggles, I want to narrate what I see:  

• Consumers hunt all over the Internet for great new songs.
• They test drive them on multiple sites, downloading what they can.
  
• They click over to MySpace to do a bit of research.
• They go to iTunes to purchase (hopefully).
• They go someplace else to find lyrics (although that’s changing).
• They go to YouTube to watch artist videos.
• They use their cellphones to obtain ringtones.
• They use Google Image Search to find unauthorized images.
• They return to MySpace to interact with the artist’s fake friends.
• They use P2P to share; then they get sued.
• They use IM to evangelize; then they get nothing.
• They use the iTunes client to organize.
• They backup using $149, external Firewire hard drives.
• They buy tickets anyplace where they won’t get screwed.

The moneymaking solution for the music industry is to move away from separate file formats such as the MP3 and into new bundled and non-proprietary formats that combine all of the activities above into one high-value package of interactive convenience.

Look at the 2009 column on the graphic above.  It’s technically possible to combine everything in green, including advertising revenue support, into one inseparable (optional) and convenient “deck” of connected content, interactivity and commerce.  This new format will:

• Work on every capable device.
• Be legally sharable.
• Give incentives to consumers that engage in promotion.
• Be forever updatable and backed up.