Neil Young’s PonoMusic seeks to make high-quality audio portable

April 17, 2014, 1:00 PM UTC
Crosby, Stills, Nash, and Young record in 1970. Neil Young’s Pono system seeks to preserve artists’ visions as much as possible.

FORTUNE — You may not realize it, but you have probably never heard your favorite song the way the artist intended for it to be heard.

When songs are recorded in a studio, the tracks of vocals, drum, bass, and guitar are compressed into smaller files that are then mixed and mastered. The sounds are further compressed when put on CDs and made smaller still for MP3s and streaming services. The version of “Satisfaction” that you hear on Spotify has only a tiny fraction of the sound quality of the one that the Rolling Stones originally recorded.

For casual listeners, who just want to sing along to Metallica or REM as they work out at the gym, that quality is fine. But for musicians, ardent music fans, and audiophiles, that sound compression is frustrating. Until recently there has been no easy way for fans to download the high-resolution audio files that would let them hear exactly what their favorite artist — be it the Beatles or the Stones, the Old 97’s or Young & Sick — created in the studio.

MORE: Will Spotify’s hat trick help it pull ahead of competition?

Neil Young was both a frustrated artist and a frustrated consumer. He couldn’t stand hearing his life’s work compressed into tiny downloadable files. “Every time I listened to my music on an MP3 player, I had to turn it off,” said Young in an interview with Fortune. “There are certain people that I would love to listen to, that I would love to actually hear, but I can’t listen to them on MP3s or CDs, because as an artist, I know what’s missing and I don’t want to listen to that. It’s always bothered me that people are stuck with that experience.”

Out of his frustration, PonoMusic was born. Pono, which means “righteousness” in Hawaiian, stemmed from the idea to give consumers an easy-to-use option to get their hands on high-quality recordings. “I wanted to make something that would make it possible for people to hear what I created or what another artist created in the studio without any downgrading, so you can really feel it. Because music is all about a feeling,” said Young.

Young has been working on the project for almost three years, building awareness for his mission to bring high quality audio to the masses when he appeared on CBS’ The Late Show with David Letterman with a prototype of the player. Despite the buzz, it was only a little over a year ago that Young brought in CEO John Hamm — not the star of Mad Men, but a venture capitalist with both an audio engineering and tech background — to really get the ball rolling.

With Neil Young lending his star power and Hamm bringing in his Silicon Valley expertise, Pono is firmly on its way to building an ecosystem for high-quality digital music and changing the way fans hear music for the $399 price tag of a Pono Music player and the cost of the high-quality FLAC files sold via (expected to be around $14.99-$24.99 per album), necessary to fill it.

“Pono is a very simple product,” said Young. “It plays music, that’s all it does. It won’t open your garage door, it won’t run your toaster, it won’t take a phone call.”

“The difference is that you hear so much more of the music as it was created,” said Young. “If it was a recording made in the last 20 years, it’s exactly what the artist created.”

MORE: At Macy’s, lessons from Walmart’s failed RFID attempt

“Music became one of the things that technology could do,” said Young. “We could put 5,000 songs on an iPod, but what most people don’t realize is that we lost a lot of sound quality to do that.” Pono is looking to reverse that trend. The music player will let users store up to 2,000 digital albums of studio-master quality music that can be purchased through a dedicated online marketplace, PonoMusic. The player will play any type of music files, including MP3s, but FLAC files are generally considered to be of superior quality. “All of the music on will be in FLAC, because FLAC is a universal audio codec that can be used by anyone,” said Hamm in an interview with Fortune. “But users won’t even need to know that it’s FLAC. What’s so great about Pono is that it’s simple and accessible. Users will just download the album they want and load it on their player.”

After developing Pono’s first-generation product, Pono turned to Kickstarter to fund development, cashing in on some of Young’s star power to generate publicity. Arcade Fire, Tom Petty, Norah Jones, Eddie Vedder, David Crosby, and other musicians were all featured in the campaign’s promotional video, talking about their experiences as artists using Pono for the first time. “Music downloads right now are not only a disservice to the artists who obsess over every note of music in each and every song,” noted Young. “But also to the consumers. Once you hear music in a Pono, you know what you’ve been missing all these years.”

To call the Pono Kickstarter campaign a success would be an understatement. As it turned out, Young was not alone in his frustration with lack of access to high-quality music recordings, and Pono hit its $800,000 funding goal in just one day.

MORE: Social data as a business is dead. Long live big data services

By the end of the campaign, PonoMusic had raised more than $6.2 million from 18,220 backers, making it the third most successful Kickstarter ever, right behind smartwatch Pebble and the Ouya video game console, just edging out the Veronica Mars movie. “Kickstarter would have been a success for us at $2 million,” said Hamm. “At $2 million, we would have had plenty of money to finish the product and bring it to market. This allows us to invest much more deeply in the infrastructure. “

Hamm appreciated the additional capital, but for him, the Kickstarter campaign brought something far more valuable: direct engagement with consumers. “Raising the money was obviously nice, but we really wanted the feedback,” said Hamm. “We have over 5,000 comments on our Kickstarter page of people who want to be early adopters of our product. We knew there was a group of people who wanted a product like this, who had been waiting for it, and this gave us direct access to them and a chance for a real conversation. There were five or six major learnings that we would never have known without that Kickstarter about what our user group wanted from this product.”

In light of the success of the Kickstarter campaign, Pono is seeing more investor interest and plans to do an equity-financing round in May or June. More important, though, it seems clear that the fans are on board with the product and that there is a relatively untapped market for a high-quality music player. “Absolutely,” said Late Night with Seth Meyers bandleader Fred Armisen. “I always opt for the highest-quality option whenever I download music, and it seems like it’s still not enough. I am looking forward to changing that.”

Perhaps more surprising is how quickly the record labels have signed up for the service. Universal, Sony, and Warner are all on board already, with an industry standard 70-30 split between the label and the service. Pono is actively seeking partnerships with indie labels. Record labels set their own prices for albums on PonoMusic, with album downloads averaging around $14.99, with single pricing still TBD.

Young thinks the labels are willing to work with him, because he’s one of their own. “I’m a record company guy,” said Young. “I’ve been around longer than most of the presidents and CEOs of record companies, so they listen to me. They understand me, because I’m not a tech guy, I’m a musician. I’m here for the record companies. Record companies have the power to make all the marketing decisions with their artists. When we give the power back to the artists and the labels who make the music, everyone wins.”

The Pono music player is set to be delivered to backers in October and presumably will be available to the general public shortly thereafter.