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!