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In other words, what’s the value of the cloud when the cost of storage is declining precipitously? Or, conversely, what’s the point in buying lots of storage — however cheap it is — when we all have access to the cloud pretty much whenever and wherever we want?) Last year, my pal Sandy Pearlman and I discussed this during a session at the Future of Music Coalition’s annual Policy Summit in Washington DC.

Below the fold, I’ve posted an essay Sandy wrote to set up the topic, followed by a couple of responses:

The Cloud vs. The Paradise of Infinite Storage (Or, When Infinities Collide)

by Sandy Pearlman

Mostly below the radar, two immensely powerful, seemingly irresistible and diametrically opposed computer technology trend lines are about to collide. The fall out of this collision of opposites, will be decisive for the future means of distribution and creation of media objects in general, for the public policy governing disposition of these objects and for the very future of music itself. Interestingly and elegantly a wonderful foreshadowing of this emerging binary opposition can be found “distributed” throughout the work of Leibniz, the conceiver of monads, infinite libraries and binary mathematics itself, way back in the 17th and 18th centuries.

In one corner, Cloud Computing: Designed to migrate user’s applications, processes and content off local device storage and up to remote storage on the “cloud” of the Internet. Under this scenario for the next regularly scheduled Internet gold rush, hard drives become cloud drives; software becomes cloudware; music would have “no need” to reside locally on anyone’s computational gadget and personal computers would have “no earthly need” to be as autonomously powerful as they’ve now become. After all in the vastness of this indispensable (Meta) Internet, upon which everyone would become completely dependent, all that used to be local and private will be subsumed. Autonomy–and Anonymity–would be replaced by Terminality. Just like it was in the 70s and 80s before computers were grown insanely powerful enough to be autonomous. For the purposes of suppressing, through tracking and interdiction, any “illicit” traffic in music objects this is the most powerful structure yet conceived. Partisans of this approach most famously include Google. Microsoft is more ambiguous than it might seem. Amazon has already demonstrated the Orwellian project of Cloud logic, with the fearful symmetry of l’affaire 1984. And Apple…? So far they’ve made a fetish of, and, have consequently become the single greatest beneficiary of Autonomy. Essentially Apple is the world leader in Solipsism Engines and fetish grade Autonomy Appliances.

In the opposing corner, The Paradise of Infinite Storage: An initiative of no one in particular but the inevitable consequence of anarchically ingenious gear heads gone wild. What happens when the entire history of recorded music can be contained on a device the size of a guitar pick? Or soon enough as an implant via Neuraljack. Extremely local storage, indeed. And if that content is shared between users on private networks, where does that leave intellectual property? With the cost and physical size of storage quickly crashing to nearly zero, what does this mean for the ongoing attempts to monetize digital music? After all computers are now grown so powerful and storage so vast, they have achieved virtual Autonomy. On their own, these machines can store and retrieve all the music ever recorded in the history of the world. And once they’ve done that once, they won’t need the Internet anymore. Decoupled from the Internet, and, coupling only with themselves, they can reproduce infinite music libraries like serial rabbits or private network interchange bunnies. One such digital infinite music library=infinite digital music libraries. Now that these machines have become autonomous, somebody wants to stop the cycle and move everything to the Cloud. Good luck.

This collision of technology paradigms automatically implicates a parallel collision in the policy sphere, between proponents of centralized distribution of media objects (down) from the Cloud and the ongoing autonomous development of a Paradise of Infinite Storage which the Cloud First guys never saw coming and which they like to (condescendingly) pretend has no reason to exist. Irrespective of whether advent of the Cloud is actually a good thing—or just another weirdly Al Yankovic iteration of Internet broccoli? (You know just Eat It, it’s good for you.) The Cloud initiative does bear directly upon the now amplifying push on the part of media property sanctity exponents to eliminate(!) web anonymity in the interests of IP rights. As was made abundantly clear during an extremely contentious debate I participated in at SXSW a few months back, the next meta gambit in defense of IP rights will be jointly premised upon this elimination of web anonymity coupled with centralized “dispensations” (and cloudy tracking and interdiction as well) from the cloud for monetized, sanctioned and dependant access to media objects. To a great extent this push is premised upon the recognition that future revenue possibilities are about to be foreclosed by ongoing developments in technology–including but not limited to local storage capacity: i.e. the terabyte is the new gigabyte–which are actually now beginning to create as an autonomous process a mechanism that decouples from dependency upon the web (and its tracking, interdiction & control) the acquisition of virtually infinite and locally stored content libraries…If the Darknet wasn’t bad enough, this is the real showstopper, the IP monkey wrench, that terrorizes IP addicts, with the fear that even the Cloud won’t save them going forward.

Inherently gear requires of its designers its own surpassing. Essentially this is the impellor, built into the once every two year doubling doctrine of the law firm of Moore and Kryder. This autonomous process continuously creates new iterations of the Paradise of Infinite Storage. Each one more infinite than the last.
This autonomous process is acutely destabilizing and absolutely impossible to suppress.

As we stand today, the entirety of the database of all the music ever recorded in the history of the world can be locally stored on 10-15 terabytes of hard drive storage for a price orbiting $1,000 and crashing.

Soon enough all the music ever recorded in the history of the world could be encompassed on that sweetly resonant guitar pick device at a similar price point. And after that the implant.

And just as the terabyte is the new gigabyte, so is the petabyte the new terabyte. Really significant since a mere 50 or 60 petabytes should suffice for all the IP created since cuneiform. Given storage cost trend lines, soon enough this will be nothing more than home storage. Autonomous process in the saddle.

Here’s a response to that by longtime music-industry analyst Ted Cohen of TAG Strategic (The following appears courtesy of The Music Void. See all of Ted Cohen’s Digital Diatribe columns at The Music Void. This appeared in October of last year. I’m trying to find a link to the original text and will post as an update.):

Supply And Demand in The Age Of Infinite Supply
by Ted Cohen

Lately, there’s been renewed chatter about the price of a digital download and just where, exactly, is the “sweet spot” for the industry and consumers. Last week, producer/professor/entrepreneur/thinker Sandy Pearlman again broached his theory of the five-cent download. Yesterday, 7digital announced its long-awaited launch in the US, and plans to compete on price by selling MP3s at $0.77 and whole albums for $7.77. This alone is a big shift from the current trend of raising the price of downloads to $1.29.

The thinking behind the five-cent download is, well, that there is no thinking. At five cents, consumers won’t give a second thought to the purchase decision – even if the song sucks, it’s only a nickel, right? For five cents, it’s far easier to get the real (high quality) track from a legitimate source, complete with accurate meta data, album art, and even lyrics, than play roulette with illegal services and risk downloading crap. According to Pearlman’s research, the breaking point here is ten cents; as soon as you hit double digits, people start to think twice.

Let’s pause for a second to take in a basic lesson in economics – that of supply and demand. If supply is low and demand is high, the optimum pricing strategy is to price the product extremely high – surely you’ll find a few suckers willing to vastly overpay, since there are only a few available. In the music industry, think concerts – you can only fit so many people into the venue, so if you want to see U2, you’ve gotta pay the price. If demand is low and supply is high, it’s a buyer’s market and prices plummet – everybody’s desperate for a sale. These days, think CD sales. Market forces cause supply and demand to even out over time (at some level), called equilibrium. Of course, sometimes equilibrium falls at a point with a price below cost, and everybody ends up with nothing, but that’s normal.

But what happens if there is infinite supply? You can’t manufacture less. Incremental production costs in the digital world are basically zero. The biggest cost of a digital download (other than licensing, of course) is the transaction cost. We know, based on illegal downloading, that demand for music is incredibly high. Ideally, we want to meet that demand (legally), and economically, the best way to do that is to lower the price.

In 2003, Listen.com and Rhapsody conducted a test to see what would happen if they sold downloads for 49 cents instead of 99. The result? Downloads tripled. It doesn’t take a mathematician to see the dollars; three times the downloads at half the price equals fifty percent more money.

But is that actually reality? On the surface, it looks like a no-brainer; lower the price and watch the cash roll in. But to really understand what happens in these cases, we have to look deeper. In the Rhapsody case, the 49 cent price point was a limited time offer, and was heavily promoted and covered by the media. How many of those purchases can be attributed to good old fashioned marketing? Plus, every other download source was selling music at 99 cents a track; when you’re half the price of your competition, you’re going to lure a lot of customers away from them – so in fact, the experiment may have actually lost money for the industry, if those extra purchases would otherwise have been made at 99 cents at iTunes or elsewhere.

If we go back to Pearlman’s five cent theory, we have to ask a few more questions. At five cents, will sales volumes be twenty times higher? What effect will the increased transaction costs have on net revenue? And perhaps most importantly, is any price greater than zero actually a “sweet spot”?

In 2007, venture capitalist Josh Kopelman wrote about a phenomenon he labeled the “Penny Gap”, whereby demand grew massively when price decreased from $0.01 to free (or, if you’re a glass half empty type, demand dropped by a huge amount when introducing any price). Simply put, there are a huge number of people unwilling to pay anything for most products – and it isn’t hard to see music being one of those. While five cents might seem like the sweet spot, we can be virtually certain that it won’t convert all those music pirates. In fact, it may hardly convert any of them.

So what’s the right answer? At this point, it doesn’t seem clear. However, I recently wrote about the concept of an experimental music license for startups to prove their concepts; perhaps it’s time the industry did some real, long-term experimentation with pricing (both lower and higher) to find out what the true “sweet spot” really is. Until then, we may never know for sure.

Finally, here’s an article that mentions another presentation on the same topic that Sandy did at the Transmission Music Conference which ran last September in Toronto’s Exclaim magazine. (Again, I’ll post the link when I find it.)

The Paradise of Infinite Storage: Transmission Music Conference and the Future
by Allison Outhit

While there’s no doubt many in the music industry are still struggling to recover from that wicked roundhouse to the head dealt ten years ago by Napster and the dawn of file-sharing, this year’s Transmission music conference, recently held in Victoria, felt somehow lacking in the coherence of purpose that made last year’s conference, for me, anyway, such a success. More troubling though was the continued absence of input from two rather significant players in the music business: musicians and consumers.

Why is that? Well, for music creators in Canada, at least, wide representation doesn’t exist. SOCAN, representing songwriters and publishers, and the Songwriters Association of Canada were both at Transmission but their interests don’t capture those of the broader musician and creator community. And the musicians’ union (the AFM) was not in the house.

I’m just saying, wouldn’t it be weird to have a conference on, say, food production and not have any farmers? Or diners, for that matter? So perhaps that’s a goal for next year.

That aside, the premise of Transmission is a very good one. Comparatively tiny and invitation-only, its great strength is in putting people with differing interests into small discussion groups and then reporting the results to the attendees at large. Small groups generate a genuine sense of purpose and engagement, which isn’t so much the case when one is made to sit passively and listen to a lecture. (The plenary speakers were okay, although this year’s list could have been three less with shorter speeches overall.)

This year’s proceedings were opened with a traditional song of greeting from a local musician Butch Dick, who is also the educational liaison of the aptly-named Songhees First Nation. In a short address following the song, Dick described his nation’s conception of “ownership” of music: songs are owned sometimes by a nation, clan, or family, and sometimes they are owned by a ritual event.

But, at all times, songs are considered valuable, even sacred, community property. They teach, inspire and keep the soul of the nation alive. The people that loses its songs, said Dick in his soft-spoken, understated way, loses its whole being. A lovely sentiment, to be sure, but one unlikely to give pause in the ongoing struggle between what the industry calls rights-holders and users.

York University media prof and conference moderator Paul Hoffert then took over. A veteran stage-pacer and former Lighthouse keyboardist, Hoffert’s lecture at last year’s conference on the hollowing-out, or “disintermediation,” of power at the centre of the industry provided many useful talking points during the ensuing roundtable discussions. This year, however, his lecture on “black swan theory” came across as a repurposed synopsis of Nassim Taleb’s bestselling book of the same name. An investigation into our inability to cope with randomness and uncertainty, black swan theory proposes that when catastrophic stuff happens, it invariably (a) comes as a big surprise (b) has a major impact and (c) can be rationalized in hindsight as having been entirely predictable. What an industry must do is to learn to profit from disruption by not relying on conventional wisdom and taking contrarian action. Buckets of money shall surely ensue.

No doubt the music industry experienced a “black swan event” with the launch of Napster in 1999. Ten years on, we continue to not have anything close to a satisfying legal commercial framework for downloading and file-sharing. And for every start-up that successfully takes contrarian action (Swedish music service Spotify came up numerous times throughout the conference), ten more are sued into oblivion or go down due to the simple fault of not being designed with a demonstrable way to make money.

It’s worth noting that at Transmission, as throughout the music industry, when we talk about “new business models,” we are invariably speaking of mobile and/or online businesses that distribute or store content in some way. And though they are largely peopled by newcomers from the tech industries, rather than players from what we traditionally call the music business, several of the plenary speakers were music producer crossovers into the tech sphere.

Most interesting was Sandy Pearlman, now Schulich Distinguished Chair of Music at McGill University in Montreal, who managed and produced Blue Öyster Cult and others, and co-founded E-Music.com before going on to a career in thinking real hard about stuff. His lecture on what he calls “the paradise of infinite storage” versus “the cloud” presented an impending and potential dark dichotomy in how we’ll “own” music in the very near future.

He calculates that with the cost of RAM getting cheaper and cheaper, it’s possible that even today you could store every piece of music, art, and literature ever made on 50 petabytes (a petabyte is 1,000 terabytes) of storage, with a current cost of $2.5 million. Not affordable to you and me — but to even a small corporation, easy. On the other hand, a huge chunk of the tech industry and new music services are dedicated to getting us to give up autonomous ownership of music in favour of accessing it any time any where from the great jukebox in the sky. Going this route could defeat all kinds of portability and hardware issues, but the implications for personal privacy are enormous.

Other plenary speakers included content aggregator IODA’s founder Kevin Arnold; music producer and founder of Slacker.com Jim Rondinelli; Abebooks.com CEO Hannes Blum; Future of Music Coalition legal counsel Walter McDonough; David Hyman, founder of MOG.com; FACTOR’s Heather Ostertag; and Tyler Lessard who heads BlackBerry/RIM’s VP of Global Alliances and Developer Relations.

The small-group roundtable discussions were focused on three broad topics as they affect the live music, recorded music and distribution sectors: Intellectual Property, Emerging Markets and Next Generation Leadership. It is in these small groups that Transmission really proves its worth: discussions tend to be both intellectual and practical, and put unlikely bedfellows together in productive ways. Only here do you find a guy who manages live music venues discussing branding and personality rights with another guy who develops ringtone applications.

In fact, it seems obvious that small groups of people with differing interests, thrashing out ideas in a discussion group, have a better chance of coming up with meaningful solutions than parking all those people in a great hall and holding them hostage to windy lectures from the experts du jour. But whether the strategy is successful depends on the quality of the attendees, and on posing the right questions.

One fundamental question that never gets posed, not even at Transmission, is whether it’s right that we continue to base all discussions on the future of music on the premise that only through its commodification can we truly “value” music. Well, of course, not to do so would be essentially to call death upon the business of music. And yet, even the most hardcore copyright lawyer would agree that music is so much more, or so much other, than a simple commodity. It shapes our brains, gives us an emotional language, defines our histories and cultures — defines us. In that sense, music is very much a community property, just as Butch Dick described it. It doesn’t matter that some people go more readily to a Journey track than to a drum and voice chant. The impact is the same: each is music that defines a people. There is no price tag, no economic framework and no legislation that can change that, no matter what the outcome of “rights-holder versus consumer” or “storage versus cloud.”

So, can we not just skip ahead to the bit where (to use industry-speak) the consumption of music is valued such that transactions costs are end-user transparent? In other words, where it’s free again? Until then, the very nature of the music business will doom it to keep struggling against its customers.

Meanwhile, at the end of his welcoming speech, Butch Dick accepted his brief applause, packed up his drum and stepped off stage. I watched him make his way to the door, and when he turned away I noticed a message on the back of his T-shirt. It read, “Live to sing to live.”