In 1948, CBS introduced the long-playing record album, the LP. The new records spun at 33 1/3 revolutions per minute rather than the 78 RPM that had been the standard for 50 years. This slower speed, combined with the fact that the smaller needle allowed the grooves to be closer together than on the old 78s, made it possible to put more music than ever before on each side of a record. To put the egg precisely before the chicken, what made LPs possible was the material from which they were made — polyvinyl chloride, generally called just "vinyl." Emil Berliner, the inventor of the gramophone, had come up with 78 RPM by first determining the size of the grooves required by his steel needles, then determining what rotational rate would duplicate the frequency range of his recordings, and that was 78 RPM. The 33 and 1/3 RPM speed first came about as a professional recording standard for talking pictures (Vitaphone from Bell Labs), because at that speed, a record could last the same 11 minutes as the standard 1000-foot reel of movie film. CBS engineers applied this professional standard to the new vinyl material, sized the new grooves to match the frequency response that vinyl enabled and — voila! — an LP at 30 minutes per side. Of course, the smaller groove also required a smaller needle, and that, too, was made possible by World War II materials technology. Edison had used smaller needles for his cylinder records, but those needles were made of sapphire and very expensive. By 1948, comparable needles could be cheaply mass-produced.

LPs were better in every way than the old 78s they replaced. Sure, listeners would have to buy new record players, and LPs might cost more to buy, but those were minor penalties for the glories of high fidelity.

Also in 1948, at about the same time that CBS was introducing the LP, RCA was across town bringing out the first 45 RPM single. The 45 used the same materials technology as the LP, but used it to simply make a recording that was the same length as the 78 it was replacing. This meant RCA could re-release its old 78 RPM records in the new 45 RPM format, which certainly set a precedent for what happened 40 years later when CDs did the same thing, replacing LPs. While 45s appeared to be lower tech than LPs, exactly the opposite was true. The CBS engineers had come up with their new standard by trial and error, but RCA engineers used a lot more science to invent the 45. Using calculus, they determined that the optimal dimensions for a recording made at a constant rotational speed (the best sound quality throughout the disk) came when the disk outer diameter was twice that of the minimum recording helix diameter (the innermost groove). That's why a seven-inch single has a 3.5-inch label. Given the CBS groove dimensions, which were dictated by the vinyl material, and targets for bandwidth and maximum distortion, the RCA engineers came up with a rotational speed of 45 RPM. What's interesting about this is that the 45, which was generally thought of by consumers as a cheaper, lower fidelity product, actually had better technical specs than the LP when each was playing on its innermost groove area.

The new 45s were cheaper to make than the 78s they replaced, and lots cheaper than LPs, both from a raw material standpoint, but especially because of the lower cost of the intellectual property (two songs) they contained. Forty-fives worked well in jukeboxes, too, because their large center holes made life easier for robot fingers. The 45s were pretty terrific, though you still had to buy a new record player.

So here it was 1948. One war was over and the next one was not even imagined, America and American tastes ruled the world, and the record industry had just offered up its two best ideas for how music should be sold for the next 40 years. What happened? The recording industry immediately entered a four-year slump as Americans, who couldn't decide what type of records to buy, decided not to buy any records at all.

What happened to the record industry in 1948 was the result of dueling technical standards sowing market confusion. The industry fumbled along until an act of God or Elvis Presley decided which standard would dominate what parts of the business. Forty-fives eventually gained the youth vote, while LPs took the high end of the market. In time, machines were built that could play both types of records, and the two technical standards were eventually marketed in a manner that made them complementary. But that wasn't the original intention of their inventors, each of whom wanted to have it all.

Markets hate equality. That was the problem with this battle between LPs and 45s — both were better than the old standard, and each had advantages over the other. In the world of music, circa 1948, it just wasn't immediately clear which standard would be dominant, so the third parties in the industry did not know how to align themselves. If either CBS or RCA had been a couple of years later, the market would have had a chance to adopt the first new standard and then consider the second. Everybody would have been listening to more music.

Now jump to the present day when digital music is the norm, but are we talking about CDs, MP3s, or DVDs? It is 1948 all over again. And what's the successful business model? Nobody knows. That's what we've been talking about in this space for the past two weeks. And in this third and final (I promise) installment, we will converge on the technologies and business models that are actually likely to succeed. This is the pay-off, and I want to thank many readers, but especially Tony Castaldo, for getting us here.

The question I posed last week was whether young people would buy music by the minute. Though I thought it was a great idea, the consensus among bewildered parents is that it just won't happen if there is a cheaper — albeit illegal — alternative. Once music or video is available digitally to people who have no stake in protecting it, it will be ripped. Copy protection won't work, either.

So digital technology may ultimately mean bands have to make their money the old-fashioned way — by touring, selling out concerts, constantly writing new music, and ignoring the undercurrent of their older music being free. To those readers who decried my emphasis on rock music examples over classical or jazz, those two genres are already living in the future where musicians survive by performance rather than because they have a recording contract. If they had to rely solely on record sales, Branford Marsalis and Yo-Yo Ma would starve.

Movies can make most of their money from opening in theaters then selling to venues like TV and cable that are too large to air ripped material. But they will get ripped eventually, so they need a business model that treats their property as a fading asset, and therefore front-loads their compensation. Music must follow that model, produce new entertainment that by its nature is impossible or difficult to rip, and that treats their new work as a fading asset and front-loads their compensation into the first few months.

If you want to front-load revenue and add new sources of revenue at the same time, one way is by a return to the old days of entertainment. MGM, in the 30s through the 50s, gave no thought to its film library because there were no re-releases and there was no residual market like cable TV, network TV, video sales, rentals, etc. They not only had to make all their money early: Given the single-screen theaters of the time, they had to make most of it in the FIRST WEEK. Same for early TV, where there was no market after their first release for kinescopes or even shows shot on film. When Desi Arnaz asked for ownership of old episodes of “I Love Lucy,” the network didn't give it another thought since those shows were deemed worthless. Remember, that was when the TV season was 39 weeks long, so there were few summer reruns.

It is easy to see how record companies would probably want to increase their participation in tours, concerts, and other public performances. If an album sells a million copies, that's $20 million in revenue compared to a $100 million concert tour. The key to this is finding a way to sell music in a way that it can't be ripped. What is unrippable is live new music at concerts, or a mix of old hits and new music with the emphasis on performance — on being there. DON'T sell CDs of new music at a concert. Sell CDs of older stuff, but make buying a ticket the only way to hear a new song in the first three months. After that comes the CDs, then radio, then residual sales by Internet or at concerts for impulse sales. This is analogous to movies, which appear first in theaters, then pay-per-view, then home video, then cable TV, and finally free TV.

This approach actually does make music better by forcing artists to produce more to maintain their lifestyle.

And this leaves a role for the record companies as financiers and promoters. Once again think of the movie business with its action figures, board games, and school lunch boxes. There is a lot of money to be made through coordinated promotion. The record companies need to stop relying on selling recordings and strengthen their hold and position on marketing the band. Studios should stop thinking of themselves as manufacturers stamping out vinyl, and start thinking of themselves as venture capitalists, bringing together professional managers and marketing to exploit talent using a model much like the movie industry.

Of course, this is not the way the music industry is presently being run. The recording industry lives for the moment, and then hangs on to it obsessively. Theirs is not a long-term business model. At least the movie industry has something closer to a product life cycle. The cost of their media drops nicely over time, and they have consumer friendly pricing.

The music industry tends to compensate its talent less well, often leading to an adversarial relationship that sometimes puts the artists (Courtney Love) on the side of the pirates. The music business as it is presently run doesn't have a product life cycle. The media price rarely changes and is usually as high as they can make it. The industry is hostile to consumers. This is already working against the music industry. Over time, the talent will find better venues to sell their work. Customers are obviously looking for a better way to obtain their products. From a technology point of view, the music industry is in an ideal position to benefit from new forms of distribution. But they don't.

An enlightened music company would see itself as being in the venture capital business. They could scout and find bands that had been playing for years, owned all their music, had strong local followings, then help them to grow out of their local markets. This removes a lot of the personnel and artistic uncertainties. And like a VC, they would fund several groups in parallel, then concentrate money on the ones that still make it in a wider market. The pitch to the bands plays on the same motivation of any small company seeking capital. You can keep bootstrapping yourself and maybe, if nobody gets sick and nothing bad happens, you will make it big 10 years from now. Or we can strap a booster rocket on your sled and you can make it national in a year or two.

This new model, which is more Tony's than mine, makes perfect sense to me, if not to a record company exec. What would be interesting, I think, would be to take this VC model to...a VC! Imagine a VC-created music company. I won't even call it a record company. The advantage of VC creation is the money is there, but not the old music. As a new label, everything has to be new, so there is nothing old to be a drag on the business model. I am firmly of the belief that given a $10 million budget, it would be very easy to create and promote a band that could do $40 million per year in business. Repeat that over and over for a few years running, and the average percentage returns on high-tech would look puny.

At the end of the day ,it becomes clear that at heart of the music industry's dilemma is a problem of distinguishing between a "process" and a "symptom." If you don't understand the basic process of something, it is easy to let it become a barrier to progress. You will probably misdirect your efforts, treating the symptom instead. That is what is happening right now as the record companies try to use lawyers and politicians to change what is probably a very natural change in the way the world works.