TPV: Who are the target customers for top-quality downloads?

Scott Bahneman: We do most of our distribution through the custom-installation channel, which means people who are passionate about music. Many of The Perfect Vision’s readers are no doubt acquainted with the concept of media centers—well, we put the media in media center.

When consumers buy media centers, they find there isn’t a whole lot of media there. They might upload photos to them and rip some CDs. But we do a lot of mass delivery of music on hard drives. So when someone buys a Niveus media server, for example, they might spend $1,000 on a pre-loaded selection of music from us.

TPV: How do you convince the younger music buying public—say, people under 30—that sound quality matters?

Scott Bahneman: It’s definitely in our plan. Our primary focus has been the custom-installation channel, which is age 30 on up. These are homeowners putting high-end audio and video in their homes. Younger people are making investments in car audio, say, more than in their homes at that age. For portable audio and iPod users, high-res music hasn’t been at the top of their list. However, a number of people are buying high-res music from us, burning it to a CD, and playing it in their cars. They then see how high-res music makes a difference. If someone only wants music on an iPod, they are not our target.

TPV: How much are people willing to pay for high-res downloads given that the majority of downloaders are used to paying anywhere from nothing to a buck or so?

Scott Bahneman: The recent announcement that iTunes offers a higher-res download for $1.29 now gets its customers music at 256kbps. We offer 1100kbps downloads for the same price. No loss; no compromise. There’s a key advantage to starting with the highest resolution you can get. With Windows Vista, you can take one of our 1100kbps files, for example, down-res it to levels of cell phones and portable players. But you can’t start with low resolution and go in the opposite direction.

It no longer makes sense to save 30 cents on a file for a very low-res format. iTunes has now acknowledged that the lowest resolution doesn’t measure up, partly because people are plugging iPods into cars and saying, whoa, the sound just isn’t there. It’s sort of like a camera phone at 2 megapixels vs. a 10MP camera. And it’s very noticeable when you turn the volume up.

NEXT: On DRM: “The industry is now taking a wait and see attitude.”

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