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: "would you prefer to sell 10 albums for $8 each month (in which case you get 10 x $4 = $40) or would you prefer to have your album downloaded 50 times each month by Magnatune members (and receive 50 x $1 = $50). " 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: 1) 1/2 of the musician royalty goes to the music each member streamed (listened to from the Internet) 2) 1/2 of the musician royalty goes to the artists whose albums are downloaded. 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! -john

Comments

[Tyler Wagner]

You are spot-on, John. The way people listen to music is changing, has already changed. Businesses and musicians that don't adapt will not survive the change. I appreciate very much the way Magnatune leads the pack, succeeding while offering a large catalog of unique and unusual music. I'll always support businesses like yours, and never those that support DRM.

[Flavio Poletti]

As some average customer, I agree 100% with what's stated in the email. Until today, I came in the magnatune site from time to time and listened to good music for free, but never bought anything. This was mainly due to the fact that there was so much music to explore that I wanted to find the "best deal". Today I signed up for a monthly download subscription, and I'm glad that there is the possibility to "flag" stuff I like (something that also prevented me from buying in the past - I always forgot what I had listened to!). So there you are, after a couple of years you finally got money from me!

One thing that I'd suggest is the possibility to download any track in any format, without restricting this to the whole album only. I like Magnatune compilations very much, and I'd like to burn CDs out of them. This means that I have to download all the albums - which probably classifies me in that "5%" that seems to abuse the service. An alternative could be considering the compilations as if they were albums, of course.

[Michele Forte]

Cool.You should try to implement an affiliation scheme as now with 20 $ month , you have enough ground to do it.It might work.
Congrats , I like your style in talking to Artists.
Ciao

Mic, Milano, Italy

[DanoSongsBlog]

John,

I just finished writing a blog post about how to use your site and I found your blog.

This is a very timely post. I answer a ton of questions about free music on Yahoo Answers and the main theme there is that people - particularly millions of very young people, don't have the money to pay $.99 cents a songs. However, they are also scared stiff about using Limewire and getting caught. The main problem with all the kids is that they want the songs they hear on the radio and disney channel - if you could do a "find music that sounds like so and so" feature that could help break down some of those boundaries. That works for bands on myspace who hit up every friend of similar sounding bands with the "if you like so and so, you will like us".

Dan-O's Free Music Blog
http://www.danosongs.com/music_blog/

[Greg M. Johnson]

Perhaps it's time to resurrect the idea of "$100 to bittorrent the catalog". (Or $25/ genre, or $500/catalog, etc...)

[Greg M. Johnson]

I thought about your problem some more. You are probably correct that the answer to your financial problem is not one of introducing a false scarcity to "the music". Your problem however may be that you've provided a false overabundance, anti-scarcity, of BANDWIDTH. Is there a way to still be loose with the music but be tougher with the bandwidth? I say the answer is ADS. Introduce some radio-style ads or appeals to contribute into the podcasts and even the play-album-on-the-page. Maybe even google ads on the web page. Would the person serious about going to your site to try out music for buying be turned off? Probably not unless they're doing it eight hours a day, all year long.

[Bobby DeVito/Stargarden/LVX Nova]

John, as an artist, I have been here from the beginning, and I think you have ALWAYS been ahead of the curve. So keep pushing the envelope, and take it forward.

However -- I do think there is a need for an "artists only" forum here on Magnatune, so that all of us can trade ideas on how to better promote our music so that YOU do not have to do the work yourself. Our model here is different. Any artist here that thinks they can just sit back and make music without doing any of the work required to promote it NEEDS to learn this is not true.

Personally, I have been working on getting my music on the cable music channel Music Choice "Soundscapes", and was very happy to see that another of our artists, Jami Sieber, already is being played there.

And, I have tried to promote Magnatune just as much as my own music in my efforts, because there is so much great music here that my own pales in comparison :-)

So c'mon Magnatune artists. Let's get OFF OUR BUTTS and do something. I know many of you already ARE. But let's get ORGANIZED, let's SHARE information, and let's get THE JOB DONE.

I worked for BMG Distribution doing alternative music marketing for RCA/Arista/ECM/Windham Hell/Jive/Zoo, etc for four years. I have a couple of skills in this arena, and am glad to help out any way that I can, including being a moderator of this proposed forum.

Bobby DeVito

[Rocky]

I've been listening to the music "off and on" for a while now as I've explored the offerings. I'm a business man in financial services who works for a profit. I am also a photographer.

First, I commend the efforts to bring good music to the attention of the world.

I would suggest that people be allowed to "explore" music to decide what they want and then download a certain amount of music for a tiered pricing program. It is human nature, generally speaking, to want to get more for less and the ultimate "less" is FREE. This de-values the artist who are adding value to the world around them.

I believe Magnatunes is on the right track, generally speaking but may be too generous to the public. I listen to the music online for "free" and feel that this should be modified to allow anyone to listen for free up to a limited number of "complete" songs per week and then unlimited listening to the first 1/3 of a song as a way to get to know the music of the artist.

I like the concept of a monthly subscription but I'm not sure I would allow unlimited downloads.

Additionally, I would want to see an option for an annual or semi-annual payment arrangement as I don't like having people debit my accounts each month. My VoIP phone provider allows for an annual payment and I am about to go for it.

I am about to do a subscription to Magnatunes so as to enjoy the music and have the artist receive their compensation they so much deserve.

Merry Christmas

R

[Radomir]

I'm a magnatunes member becouse I want to reward and encourage musicians to make music. To be honest I can't remember when is the last time I bought an album in a store. 20$ for a cat-in-a-bag. No thanks. Sure I can listen to all those albums in the store as well but I really don't have hours to waste in CD stores.

As for monthly subscription offer all I can say is: GREAT! Trough this magnatunes has won me as a customer for as long as I can get good music there. And as I will invest over 100$ a year into it I don't think it's too generous as I usually leave 0$ in CD stores as I already pointed out. I just hope you get to reward quality musicians and not have to water it down with crap downloads.

Good luck magnatunes, I hope you last long.

[David]

What a clear and sensitive letter. I hope it gets your mission and strategy across to your members and musicians.

I'll just express that my own preference is to download albums, though I am glad you now have devised an alternate way of meeting your financial goals as a business.

In short, I hope you keep both.

Dave

[R W]

Just a quick thought. I'm a very occasional visitor - but to begin with I listened often... eventually deciding that there was only one album I really liked and buying it. Occasionally I return to see what's new - but I find it really difficult to tell... so you lose a good opportunity to sell to me. I like 'world' music - and really stuff which isn't messed around with too much with amplification or adding a standard drumbeat or artificial reverberation. There's no easy way for me to tell if there's something new that fits this narrow definition - nor even any easy way for me to tell if an album has been added to the world music category.

It would be nice if I had some way to connect to the work that you presumably do to go out and search for new music. I'd like to know that you are really pleased to have found 'Group A' and to have a few words about them. This is something that could make your site stand out from the crowd - a sense that Magnatune is not just friendly to 'new' groups but that it actively seeks out and brings them to the world.

[Adrian Jones]

As an artist signed to Magnatune (Lie Big) I find this news very encouraging, it's good to see that you are addressing the marketplace and assessing what is best for the adjustment of your model. What is really lacking in many of these music download/subscription sites are good search tools for music. If I am looking for new music I would like to be able to search based on my favourite music or artists in a particular style and be pointed in the direction of something similar but new. For instance if I was in a heavy mood I wanted to hear something new that's along the lines of Soundgarden or Alice In Chains, being able to search using these known artists and influences rather than genre (which is usually wrong or wholly inaccurate anyway) would be a much more powerful tool for finding and listening to new artists. No site I know of has implemented this well yet, be the first!

[Franklin]

What would be an even better business model if you were attempting to turn a higher profit and offer an ad-less venue of music delivery as a means of getting across the music, a way in which someone could connect through their personal media player and stream the music without being interrupted by the advertisment in between new songs.
As well as limiting the number of albums to 4-5 a day (A decent number considering people only listen to about one hundred songs through out the day) it limits bandwidth usage as it will allow people to stop and enjoy the music, motivating them to listen to what they've taken in and decide on if they should persue more of the same artist or continue search for a better album.

But the currently offered model is a nice solution to lower turnouts

I'm available for further discussion through email.

[yogijohann]

Well done for a good business model and being true to an adapt or die philosophy in times of big changes.

It will become increasingly difficult to unnusual music to sell per download, so any new ideas to create revenue for fringe musicians should always be welcomed. Well done for trying and keep going.

[thomas]

Happy new year!

I have 2 feelings about the membership thing:

1. Judging from my own behaviour, it lowers the threshold of buying music. It seems easier to click "sign up" once than to click "buy" 10 times.
2. It seems to be favourable to the "smaller" artists. While the download of my favourite artist's stuff (which may be other's favourite as well) is running, I browse some of the more unknown, thus creating income for some I would never have paid for on a per-album base. Fine with me, I consider myself a "small" artist so I believe I benefit from the model.

[StarlitVoyager]

I read your blog about leaving a blank space for the price of monthly memberships. Well, how about putting a blank space in for single purchases too, in case people would like to give more than $18 for an album?

Also, I do think it would be advantageous for Magnature to implement a "shopping cart" system for customers who want to pick up a bunch of albums in a single transaction, yet aren't comfortable with subscription memberships.

[Magnus]

You are truly a pioneer, and very well redefining how my children will understand the music industry.

But! (and there is always a but)

I really wish I could buy more music from you. The selection of artists is perhaps too esoteric, and most of the more mainstream acts (especially in the rock & roll section) have been uninspiring acts. I think if Magnatune were to make more of a push to sign artists in more popular genres, people like me would be buying a lot more music.

Nothing against medieval baltic re-enactment music, but how many people seriously want to spend money on that vs. a solid rock & roll album?

[Thorbjørn Kühl]

I would like to know how you split the lifetime membership money with the musicians?

You can never know if I decide to wait two years before downloading another 10 albums as I just did today (My girlfriend really likes Solace), or if I just download one album a day for the rest of my life.

Of course I guess Magnatune has 287 artists, 638 albums and a total of 8776 songs. Assuming only the artists who are with Magnatune at the time I signed up it comes to about a dollar per artist, but that's kinda unfair to the artists I download a lot from if they all get a dollar (or 50¢ because you keep half). So how does it work?

[John from Magnatune]

re: how musicians are paid with lifetime memberships.

For book-keeping purposes, a life-time membership is paid out to musicians as if it were a 3 year membership.

[paul]

See, here's a dilemma. Say I buy a lifetime membership ($295) and download all the albums. As you say, some people do that with a 1 month membership, which is tacky, but with a lifetime membership I'd hope it's considered legitimate. It's booked, as you say, as a 3 year membership, basically $100/year. 50% ($50 a year) goes to the artists, and there's 500 albums so they get 10 cents each in the first year. THAT doesn't seem so great for them, especially since I'm primarily interested in classical music and have been happy up til now buying 10 or so albums a year or so at $8 a pop, and would keep doing so if I didn't have to switch to using paypal, and I'm not really all that likely to listen much to the non-classical albums. (So why would I want to download them? It's like buying a dictionary with 50,000 words in it even though I'm only going to look up a few hundred of them at most over a lifetime. Buying the whole dictionary instead of selecting specific words from it is still perfectly reasonable if it's affordable and you have the shelf space, or hard drive space as the case may be. Anyway, this illustrates that the all-you-can-eat model still creates a dilemma if supporting artists is part of the member's goal. Every download of a not-so-interesting record costs the member nothing, but dilutes the payments to the performers of the records that the member is more interested in.

In the second and third years, it's also sort of weird, since you seem to release maybe 50 albums a year. So if I download all of the new ones, each artist is getting $1, which I guess is a bit better, but puts those later artists at a big financial advantage compared with earlier ones.

[paul]

Wow, that last post of mine was even more incoherent than I remembered. Oh well.

I notice something else: the membership model puts you under constant pressure to release new material, so people keep renewing. You now have new releases just about every month, instead of every several months like before. "More to choose from" isn't necessarily such a good thing. There are tons of free downloads (FLAC format and all) from archive.org, jamendo.com, and so forth. So why do I want to spend money with magnatune? Because of your editorial role in selecting good music. Most of the stuff on those other sites is a random hodgepodge, and who wants to listen to it all to find the good stuff? Magnatune downloads in my experience have always been of consistently high quality. I'm not saying that's changed or changing, I'm just noticing how it might be possible.

Another idea: do you think of selling a hard drive with the entire Magnatune catalog? Say a 500gb laptop drive with the FLAC and VBR files, album covers, etc., at maybe $250 for life members and $500 (life membership included) for anyone else. I'd buy it.

[Andreas Lober]

How I buy music:
1st place: A real CD for a good price (~ 10€) with artwork, digipack is preferred.
2nd place: FLAC/WAV + artwork in a good quality, then creating a CD on my own.
3rd place: There is no 3rd place.

The download membership here is a good alternative for me, I hope the CD covers will not disappoint me.

Best regards,
Andreas