Reassuring my musicians
Below is a letter I sent out today to my Magnatune musicians. The new "membership" business model that I've deployed for Magnatune is great for customers, but it's a bit new and scary for musicians, who have been used to selling albums one-at-a-time to the public. I've received a few worried emails from musicians, and thought I'd write a letter out to them explaining what's going on, why this might be good for them.
|From: John Buckman|
To: my Magnatune musicians
About 6 months ago, I started an experiment on Magnatune, to find an alternative business model from the "sell one downloadable album at a time" model that I've used for 5 years.
Why the need for change? Because:
1) the huge press coverage that Magnatune enjoyed for its first 3 years is now well over, so I can't rely on hordes of new people coming to Magnatune every day.
2) The daily number of visitors has doubled in the past 2 years (now about 30,000 unique visitors a day, and about 350,000 unique visitors per month). This is great, though it does increase expenses
3) The rate of listeners-to-purchasers has plummeted, from "out of 32 listeners, 1 becomes a buyer" to "1 listener in 150 becomes a buyer". In other words, the "conversion rate" is now 5 times worse.
4) We've seen the money we get from itunes/amazon/others drop by about 1/2 in the past 2 years, so other music stores are no silver bullet solution for us. The total sales from all other web sites (those besides Magnatune) accounts for about 8% of our yearly revenue.
The research I see points to consumers listening and consuming music differently than they used to. Almost gone are the days of the "collector", a person who built their music collection one at a time over many years. Now, people are used to pandora, last.fm, yahoo music, and many other services that provide huge quantities of excellent music. Gone is music scarcity, we are in an era of plenty, and most of the music people can hear is free.
Nonetheless, I still get 30,000 people a day coming to Magnatune, and when I interview these people, I find that they are HUGE fans of our music and mission. There *should* be a way to convert those fans into money. That's what I've been trying to work out.
A few weeks ago, I finished the last step in offering a new way to buy music from Magnatune: the " monthly membership". I've found it really hard to convince people to spend $8 to buy an album from an artist they've never heard of, despite having heard it and liking it. That's perhaps unfair, but it's reality. However, if they've already paid $20 that month and there is no incremental cost to them to download the album, they will give it a try. That's what the membership concept is: people pay a monthly fee, every month and in return they can download whatever music interests them from Magnatune. It lets people explore our music without feeling like they're taking a financial risk with each album.
What I'm seeing with the new membership offerings:
1) we're making 2x as much revenue daily from memberships as from download sales, and download sales seem unaffected by the membership offering
2) people are listening to a lot more of our music because of this new way of paying for it. They're blogging more too.
3) Music Licensing continues to do well, and it seems like having more fans for our music could lead to more music licensing deals
This new model can be more than a bit scary for musicians, which is why I'm writing you this letter.
Let me ask you a hypothetical question:
From the trends I'm seeing, you will make more money from Magnatune under the membership plan than the old download business model. The reason is simple: Magnatune splits 1/2 its sales with its musicians, so if Magnatune makes more money, you make more money. More people will listen and download your albums, you'll have a larger fan base, though you'll receive less money from each fan.
I have received a few worried emails from Magnatune musicians, who worry that someone could join Magnatune and download all their albums, and then cancel. That is absolutely true: this can happen and occasionally does. However:
1) I closely monitor the use and "abuse" of our membership offerings, and this sort of misuse of our membership plans happens around 5% of the time. 95% of people are honest and download a few albums at a time based on what interests them.
2) With the 5% who download-everything and then cancel, would you actually have ever sold them any music? I don't think so. People who act like that are unlikely to pay for music, so you're not really losing any money in that case.
3) With a membership, every month the person pays, whereas previously we earned on average $18 in sales per year, per customer. Now, each customer pays us about $200/year. You get 1/2 of that, whenever that person listens or downloads your music.
4) treating most people as honest, and tolerating those who aren't, makes the honest people feel good and rewards them when they do support us. A control-oriented, copy-protection kind of business tends to punish the honest people, because the dishonest ones either ignore your site completely, or bypass your security measures. Magnatune has always been against "DRM" for this reason.
As far as how you get paid, the formula is still that you get 1/2 of what Magnatune gets. That 1/2 is then divided up by:
In both cases, the more streamed or downloaded you are, the more you get paid. At each 6 monthly period, before you get a royalty statement, you'll see monthly "music licenses" for your download and streaming royalties, providing significant detail about how and when your albums were heard. The reports take a lot of computing power to generate, which is why we only update them at the end of the royalty period.
If you've got any thoughts or questions about all of this, please do send me an email.
I know this is scary, and new, but the old music business--especially for unusual music--is evaporating quickly. I want to try to find a business model that will continue to have people pay for the music they love, so that you can be fairly compensated and can afford to continue to make new recordings.
Thanks for reading!
Help get our iPhone app approved
I'm a teeny bit worried that Apple may reject our upcoming iPhone/Magnatune app, because they recently rejected another music application for using too much bandwidth. I'd rather not limit the iPhone/Magnatune app to only being used on wifi, because it does work well on 3G as well. And once Apple rejects you, it's hard to get them to give you another chance. So... I want to put our best foot forward the first time we apply to them.
I was thinking that the best way to make Apple happy would be to add a "buy from iTunes" link to the iPhone/Magnatune app. By doing that, Apple won't see us as competing with them, and instead will see us as helping promote sales of our music on iTunes. You can buy music directly from the iPhone, and it will sync back to your iTunes folder. Plus, all of the Magnatune-supplied music on iTunes is DRM free.
But... I need some help.
I need somebody to spend an hour or three matching up each album at Magnatune with a URL to the right iTunes store page.
What you need to do is for each and every Magnatune album, go to the iTunes store, find the appropriate album, right click on the artwork, and copy the URL. Then, put the URL in a document to me, clearly labeling what Magnatune album it belongs too. I can then put that into our database. Sometimes, the album is available from iTunes directly from the musician, and not through us, which is totally fine (as in the example on the bottom of this blog entry). About 2/3rds of Magnatune albums are on iTunes through us, and the rest should be also available on iTunes, through arrangements the musician made on their own.
For example, the album at:
can be bought from iTunes at this url:
Update: a big thanks from me to Chris Allen and Chris Harvey for volunteering to do this and getting it done (and nicely done too) in just a few short days. Thanks Chrises!
Membership without obligations
In a previous blog entry, I wrote about how you can now choose how much you want to pay for an all-you-can-eat Magnatune membership. These memberships let you listen and download everything on Magnatune, without any limits.
From today on, you are no longer required to commit to a 3 month minimum: you can have as short a membership as one month.
Also, since the majority of people pay for memberships using Paypal (vs credit cards), we now support Paypal's recurring payments feature, so that you can choose to auto-renew, yet retain total control over billing by being able to cancel from within your Paypal account.
I've been working with Leah Belsky (from open-source-philosopher-guru Yochai Benkler's group), to phase in each change at Magnatune in a controlled-experiment kind of way, so that both Magnatune (me) and the academics (Benkler's group) can get data that is meaningful, quasi-scientific and which hopefully leads to insight.
The final step in this transition happened today.
Memberships to Magnatune are now:
1) no commitment: one month at a time, whereas previously the minimum was 3 months
2) pay what you want: you fill in the amount you want to pay (no drop down box), though there is a $5/month stream membership minimum, and $10/month download membership minimum.
3) paypal recurring payments: use paypal recurring payments instead of a credit card, so you are completely in command of your membership, and can cancel it from Paypal if you like.
4) non-recurring and recurring both available: you choose whether you want your membership to auto-renew, or if you want to renew it by hand yourself
5) DRM free, Creative Commons licensed, and perfect audio quality: so you are free to enjoy our music as you wish
6) shareable music with your friends: you can share music you've obtained from your membership with your friends, though we ask you to be mindful of our business model and recommend you share no more than one album per friend per month
7) Everything: complete access to all our music. Downloads, 4h podcasts, streaming, iTunes & Amarok & Rhythmbox & Songbird support, and more.
8) Musicians get paid: with everything you do, 50% of your membership fee goes to the musicians you listen to. Magnatune remains fair to the musician.
This is no "fire sale", this is a post-scarcity business model that we have been adopting, and let me say that it's been working really well for us. I'm continuing to see a lot of people join as Magnatune members, and can proudly say that each day, we make twice as much money from our memberships than from our download sales. Memberships have quite literally turned our business around, so that we're growing strongly again.
We're simply continuing to face the "Internet Reality": a world where everyone has more music than they know what to do with (from Bittorrent to Last.fm and beyond). The way to compete in this new world is not try to create artificial scarcity, but offer something better than what is available for free, in all ways that we can think of.
In other news, we're putting the finishing touches on the Magnatune iPhone Application. You'll be able to listen for free to all Magnatune albums. Non-members will hear my slightly-annoying voice at the end of each track, telling you what you just heard, while members can enjoy all our albums, commercial free, on their iPhone. Assuming that Apple accepts the application, it'll be an easy download from the iTunes Application Store.
The best things happen in Sweden
I recently returned from 10 days in Sweden, speaking at two conferences.
The first conference was the Nordic Cultural Commons Conference organized by open-law wunderkind Herrko Hietanen. I got to reconnect with the always-inspiring Paul Gerhardt and his Archives for Creativity Project and pontificate leisurely with him about what "Britishness" is, while the conference organizers had us drinking champagne several hundred feet underground in Stockholm, in a former top-secret nuclear reactor lab called "R1". Victor Stone of CC Mixter was there, and he and his wife provided the ambient audio/video to the nuclear-reactor party.
I got reconnect with both founder and also the current head of Pirate Bay, since we were on the same panel together. A few hours drinking mojitos with Rickard, the head of the Swedish Pirate Party. At the first night's dinner, the quiet unassuming lawyer sitting opposite me turned out to be Till from the GPL Violations project! Also got to spend time with Timo from Star Wreck, who is working on his new film Iron Sky. I might get involved with Star Wreck 2, helping them fight evil in the movie business.
Stockholm is incredibly gorgeous: 11 islands, bridges & water everywhere, grand buildings. A cuisine that is clean, fresh, light and honest. Ate twice at two of my favorite Stockholm restaurants: Wedholms Fisk and Lisa Elmqvist which is inside one of the great food markets of the world: Ostermalms Saluhall.
This was one of the best conferences I've ever attended, perhaps not surprising as one of the other all-time-best conferences was another one in Finland: OpenMind 2006, where I met Herrko, the Star Wreck boys, Vili Lehdonvirta and Andreea Chelaru. Finland creates wonderful things.
In Stockholm I participated in a panel and gave a talk. The first panel was the much-anticipated "REVOLUTION OR REFORM - debate on pirate movement and copyright reformism. A video record of that panel is available at
I also gave a presentation entitled "Money for Nothing: building on the Commons for fun and profit" about Magnatune and BookMooch. The slides to my talk are downloadable, and the video is also up at:
Next I went to Gothenburg to the FSCONS conference, which was a joining of the Free Software Movement and the Open Culture Movement. Many interesting talks, but by far the best were those by Smári McCarthy, including a brilliant keynote he did about Crowdsourcing Democracy: : applying the lessons of open source culture to governance.
The video of my presentation: "Squeezing the evil out of the music industry" is available here:
All the videos from the FSCONS conference may be viewed here:
Just before the Swedish conferences, I was in Frankfurt attending & speaking at the Frankfurt Book Fair, about BookMooch.
My slides from that presentation are downloadable and a video is available here: