Over the past decade countless Internet music ventures have gone down the drain. Sometimes it seems as if today only a giant (and gigantically rich) company like Apple with its iTunes store and software tie-in can succeed in music-download sales.
Magnatune is helping to prove the contrary. On the heels of its quietly revolutionary announcement that customers may share their uncompressed-audio music purchases with up to three friends, the online record label and store has seen a 40% increase in sales. I spoke by email with Magnatune founder John Buckman about his new offer to “fill your iPod for $200″ and, generally, about what he’s doing right and what the music industry on the whole is doing wrong.
A basic element of Magnatune’s business plan is that although it sells directly to the customer, it also deals directly with the artists, who are signed to non-exclusive distribution agreements and receive 50% of the proceeds from sales of their music. The lack of an intrusive middleman is what makes this equal partnership economically and conceptually practical. With traditional record labels, creativity in marketing is discouraged, when it’s needed now more than ever; “Every business idea [the artists] have needs to be approved by the record companies [which] control the music,” Buckman says.
Native Internet companies aren’t immune from seemingly nonsensical thinking, either. When Real.com, through its Rhapsody service, cut its prices in half and sold ten times more music downloads, it ended up “paying the record companies more per song than they were charging, despite the fact that the tenfold increase in sales meant five times more revenue for the record companies. Basically,” says Buckman, “I pity anyone who has to convince record company executives of new business models: that’s a short path to insanity.”
Magnatune customers set their own prices, paying what they feel an album is worth (plus a fixed additional fee if they want a physical CD, including full artwork, mailed to them). On average, the artists receive $4-$5 per album sale, far more than artists on major labels get. And while that may be somewhat less than the typical take from a CD sale at the revered online indie record store CD Baby, and less (percentage-wise) than the latter pays out for download sales via its digital distribution service, Buckman explains that CD Baby is a very different beast: “CD Baby doesn’t promote your CD, it’s a shopping cart [and fulfillment house] for you to send orders to, from your [the artists's] web site. Cargo Cult, for example, one of Magnatune’s best-selling artists, sees fewer than 10 sales a quarter from CD Baby yet sells hundreds of copies in that same time frame on Magnatune. That’s no failing of CD Baby, they simply have a different mission: CD Baby sells your CD to people who already want to buy it. Magnatune finds people and gets them to want to buy your CD. Totally different things, equally valid.”
Things aren’t quite that cut and dried: CD Baby does provide a recommendation engine and offer some promotional possibilities; conversely, Magnatune artists do have their own websites, from which they link to Magnatune. But Buckman’s distinction between a “boutique” store/label like his and a supermarket like CD Baby is important. Any artist can sell through CD Baby: currently it offers CDs from a staggering 112,000 indie musicians and bands. Magnatune’s 200 or so artists, by contrast, have been selected carefully by Buckman and his small staff. It so happens, for example, that Magnatune has an excellent roster of early (e.g. baroque, or pre-Classical) music, of which I am a fairly big consumer. Having bought several albums and sampled numerous others there, I know that most anything Magnatune offers in that genre will be something I would want to have. So, for me, Magnatune has become a destination in itself. And when I buy music there, I know that 50% of my purchase price will be going directly to the artist. Hence I am getting not only music I like but the satisfaction of knowing I am truly supporting the musicians.
For its musicians, Magnatune offers more than a storefront. It employs “a full time PR agency that does nothing but send our CDs out to magazines and websites for reviews. We’re constantly getting major PR.” This week’s issue of Time Magazine, for example, lists Magnatune among the top 20 music websites; a full page story in The Economist appeared recently; “and those stories usually feature our artists. Not to mention podcasters playing our music, our network of partner web sites (Webjay, iRate, last.fm) and others.” Buckman has a refreshingly radical view of paid advertising: “Advertising is stupid, it’s only for companies that no one is naturally interested in. Over 600,000 web sites point to Magnatune.com today, because they think it’s a very good thing and want to spread the word. Magnatune is religion. Fight evil! What could be simpler?”
Magnatune customers considering buying an album can listen to the whole thing online – not just samples – in high quality first. Once they buy it, they can download both MP3s (compressed) and CD-quality audio files. Although the latter are much bigger and take a lot longer to download, Buckman reports that “70% of buyers get the perfect quality files, and another 40% download the mp3s. You can download multiple formats, or come back in a month and get the files again. The trend is clearly toward perfect quality, as well as well-tagged MP3s for your iPod.” Since most online music stores do not offer full-quality files, this is one way Magnatune stands out.
Another is the selection. Like a major label, Magnatune offers quite a few genres of music. But unlike a major, Magnatune sells more classical music than anything else. World music, Electronica and New Age are also big sellers. Evidently Magnatune has found an audience with tastes that are not being adequately served by the old-guard labels. So, although its nontraditional business plan may get much of the press, Magnatune’s concentration on high quality music in second-tier genres is also a big factor in its success.
Buckman goes beyond pointing out the majors’ failure to adapt to the digital age. He considers their practices downright sinister. Magnatune’s slogan is “We are not evil.” By evil, Buckman means “behavior that is unethical and destructive. Labels not paying musicians… CDs going out of print, while the labels keep the rights so the musicians can’t even make their own CDs, that’s evil. DRM [Digital Rights Management, currently in the news because of the Sony rootkit debacle] is evil. Suing end users is evil. Abusively high pricing is evil. 30-second samples are evil. Spyware is evil. We’re surrounded by so much evil stuff on the Internet and in the music business that I feel we’ve lost perspective. What would it be like to run a company that wasn’t evil?”
Magnatune might not be evil, but building a company takes money. Buckman has invested $1 million into the site, and it is just now “barely turning a profit, as of August 2005… [but] the ‘barely’ is on purpose: the focus is on growing Magnatune, not pulling cash out, because this is all about getting musicians enough money so they can keep at it, and avoid working at Burger King!”
Fees from music licensing (to independent filmmakers, for example) can be a significant part of the income an artist can make, but usually it’s a much more difficult side of the business for artists to deal with – unless they’re also lawyers. But Magnatune makes it unusually easy, both financially and technically, for producers to license its artists’ music. In fact, the artists who market and appeal to both consumers (via direct downloads) and producers (via licensing) do the best at Magnatune.
Another big part of growing the company is coming up with new marketing ideas. Buckman attributes the recent sales jump to several of these, including giving customers who buy an album the right to give it to three friends and to podcast the music for free. He will even send the enthusiastic customer a stack of promotional cards to hand out.
Magnatune’s latest marketing idea is its new “fill your iPod” offer. Noting that iPods have a lot more storage space than the average person has enough music (and/or time) to fill up, Buckman came up with the idea of bundling its 400 or so albums into one $200 lump-sum purchase. Yes, that’s not much money going to each artist included in the bundle, but it’s better-than-free promotion, especially considering that people who take Magnatune up on the offer would not have otherwise been acquiring most of those albums at all.
“The average buyer spends $14 a year at Magnatune,” explains Buckman, “buying an album and a half (on average). If we can get those people to spend $200 on us instead, then, yes, the per-CD price is much lower (of course, that’s why the person spent the $200) but much more total money comes our way and gets paid out to musicians. As a musician, I’d rather sell 1,000 albums at 50 cents, than 10 albums at $8. It’s not only more money, but a much larger audience and word of mouth! Besides, people don’t buy 40-gig iPods to put just their five iTunes-store-bought albums on them. They want to fill them up! The need is there, it’s just that no one has ever offered to fill an iPod up with legal music, at a realistic price.”
Now someone has. Stayed tuned for the further adventures of Magnatune.