In May 2016 we received a call from Omnifone, the provider of all the back-end services for our music store, telling us that they had just filed for bankruptcy. They reassured us that they would continue to run their operations and our business would not be affected. Clearly, that made us nervous, but there was little we could do.
We were right to have been concerned. A month later, Omnifone received an offer to be purchased. They called to tell us that they would be shutting down all operations within the next four days, including our store—a requirement of their buyer, Apple. That was a devastating blow to Pono that impacted our entire business model and extinguished a key source of our revenue. The store was instrumental to the Pono business. The loss of Omnifone meant that we would lose access to all of the content of our music store. We could no longer sell downloads. Our source of music delivery was cut off.
Neil tried calling Eddie Cue, Apple’s executive who ran all of the company’s music services, but was never able to reach him. He left several messages, but Cue never called back.
So, did Apple buy Omnifone simply to shut them down and to put us out of business? At the time, the rumors were that they did it to get access to Omnifone’s employees and technology, but either way, we were collateral damage. We had no other choice than to look for an alternative company to develop our music store, starting all over again from scratch. As we searched, we expected that the closure of our music store would be temporary.
There was only one practical alternative, a company called 7digital, also based in the UK. We reached out to them and quickly came to an agreement. One of the requirements was for them to rebuild the entire music library that we lost from Omnifone and incorporate all the features that made the Pono music store so unique: highlighting high-res albums; eliminating all lower-res content that was available in higher-res; running promotions; and, of course, incorporating the Pono Promise, allowing free upgrades when a higher-res version became available. They had assured us that this development work was straightforward and could be done quickly.
However, as we began working together and got into the specific details, 7digital found the cost to implement these changes to be much higher than they originally estimated, and that it would take much more time than they had assumed. While we could have used their generic store design, it would have been just like all the other download stores, with none of the features that had made our store so special by focusing on high res.
PONO COMES TO AN END
After examining the amount of sales that we’d need to cover the 7digital development costs, the numbers just didn’t work. We had finally met a challenge that we couldn’t overcome.
Apple’s sudden closing of Omnifone was certainly not the only cause of Pono’s demise, but it was the final event that led to Pono deciding to shut down. Neil announced the sad news in a letter posted on the Pono website at the end of December 2017:
Ladies and Gentlemen:
As you all know, we have been working to bring high-quality music back to the world that’s become used to mediocre, hollowed-out files. The cause seemed to be a win-win for everyone. The artists would allow their fans to hear what they hear in the studios, and the music lovers would hear the music the best it could be. This cause has been something I’ve written and talked about for over twenty years. I cared and I assumed that most of the world would care.
It’s been almost five years since we kicked off the campaign at SXSW to offer a player and download content that could fulfill my dream of bringing to you a music experience unlike any other for the cost. Thanks to our supporters on Kickstarter, the follow-on customers and some very good friends that supported the effort, we delivered on that promise. Our player won best digital portable product of the year from Stereophile magazine, and we offered some of the best high-resolution content to be found anywhere. We sold tens of thousands of players, every unit that we made. Thanks for that!
But, despite that success, I was not satisfied. I had to put up with lots of criticism for the high cost of music delivered in the way all music should be provided, at full resolution and not hollowed out. I had no control over the pricing, but I was the one that felt the criticism, because I was the face of it. And I pretty much agreed with the criticism. Music should not be priced this way.
When Omnifone, our download store partner, was bought and shut down with no notice by Apple, we began work with another company to build the same download store. But the more we worked on it, the more we realized how difficult it would be to recreate what we had and how costly it was to run it: to deliver the Pono Promise, meaning you’d never have to buy the same album again if it was released at a higher quality; the ability to access just high-res music, and not the same performances at lower quality, and the ability to do special sales. Each of these features was expensive to implement.
I also realized that just bringing back the store was not enough. While there was a dedicated audience, I could not in good conscience continue to justify the higher costs. When it comes to high res, the record industry is still broken. The industry was such that even when I wanted to remaster some of the great performances from my artist friends at high res, Pono had to pay thousands of dollars for each recording, with little expectation of getting the money back. Record companies believe they should charge a premium for high-res recordings and conversely, I believe all music should cost the same, regardless of the technology used.
As you might imagine, we found it difficult to raise more money for this model: delivering quality music at a premium price to a limited audience that felt they were being taken advantage of with the high costs.
Additionally, the company was in default on its loans of over $2.5 million in the aggregate to its secured creditors, who moved to foreclose on the assets.
In light of the challenges facing Pono and the financial condition of the company, the Board of Directors acknowledged that it was time to wind down and dissolve the company . . .
Thank you all very much for supporting Pono and quality audio.
Very truly yours,
Ivanhoe (DE) Inc.
Neil Young
President
Elliott Roberts
Secretary