We discover a record label that isn't evil

WHEN MUSICIAN and composer Jan Hanford was signed to an independent record label, she and husband John Buckman were delighted. But despite glowing reviews, Jan's CD ran into a brick wall when the small label tried to bring her music to a wider audience.

"The label got screwed at every turn," recalls Buckman, "distributors refused to carry their CDs unless they spent thousands on useless print ads, record stores demanded graft in order to stock the albums, and in general, all forces colluded to prevent this small, progressive label from succeeding... In the end, she sold 1000 CDs, lost all rights to her music for 7 years... and earned a total of $137 in royalties paid."

Buckman realized there had to be a better way of doing things, for Jan and for other artists who didn't fit in a music industry dominated by giant corporations. So he founded his own record label.

Magnatune builds on Buckman's experience as a musician and programmer (he earlier founded email software developer, Lyris). The company sells music under a Creative Commons license - there is no Digital Rights Management (DRM) and none of the usual restrictions on copying. The company's website, Magnatune.com, also acts a a radio station: visitors can listen to all of the music for free online, whether they buy or not. Most Magnatune customers download songs directly from magnatune.com, though the music is also available as physical CDs delivered by mail.

Magnatune's 170-plus artists enjoy non-exclusive licensing that gives them 50 percent of gross sales income, and freedom to sell their music elsewhere. Compare this to traditional record label deals, which, while promising great riches for a few, are far more restrictive, with artists losing control of all their work and receiving effective royalties below 5 percent of gross income. The 18-month-old company's slogan is 'we are not evil'.

Magnatune founder, John Buckman, recently answered the INQUIRER's questions.

Q. Is Magnatune profitable?
No, we spend more on marketing than we bring in, which is our plan for the first three years. If we cut the marketing budget, operations would be covered by current sales, but we're not interested in staying at this small size, hence the drive to growth at the expense of profitability.

Q. How many songs does Magnatune sell each month, and how much money do the sales earn?
We sell a little over 1000 albums a month - about $10,000 a month - and this has been stable for about 6 months. Music Licensing has grown from about $2,000 a month 6 months ago to about $10,000 a month now. I expect most future growth to come through sales through other channels, as well as music licensing.

Q. How do you feel the major record labels have handled the new challenges and opportunities offered by the Internet? How do you expect them to do in future?
So far, they are mostly in fear of it, and sabotage new business ideas attempting to stake out ground. iTunes has a terrible time getting labels to agree to let them sell their music, and [the record labels] are constantly coming up with ways to make it harder (raising cost, keeping encoding quality down, removing songs on albums, requiring DRM).

I don't expect any major changes from The Industry in the future. Their cultures are finely tuned to a reality which existed for a long time, and made them wealthy. It is likely that new record labels will eventually dominate the Internet music space.

Q. Do you think P2P file sharing of copyrighted music helps or hinders Magnatune?
If you mean sharing of non-Magnatune music, then it hinders, as it provides a huge no-cost selection for buyers and removes some of the incentive to buy any music at all.

If you mean sharing of Magnatune's music, sharing mostly helps us, as we represent relatively unknown artists and have small marketing budgets, and are not engaged in the business of "star-making" which is the major label's main contribution. File sharing is a marketing channel for us.

Q. Most online music stores have strict limitations on the location of buyers. For example, the UK iTunes store can only sell to customers in the UK, and checks IP address and credit card registration details to ensure this. Does Magnatune place any restrictions on international users buying or listening to music?
Magnatune has no such limitations. These limitations are largely based on major label's conceptions of territory exclusivity, distribution and branding, and of course, a desire to limit iTunes (and others') reach.

I believe the majors are deathly afraid that iTunes will become the Microsoft Windows of the music world, and I have to agree with that assessment. If it's a benevolent dictatorship, that may be fine.

Q. Magnatune only sells albums. Do you have any plan to sell individual songs?
Not through Magnatune, as I see no viable business plan for me selling a $1 item. Only around $8 does the expense of running the business start to pay for itself.

Also, Magnatune mostly represents "grown up" music, i.e., not what is hip in the 12 to 18 year old crowd (and not single-oriented), but genres like Classical, Heavy Metal, Electronica, World. The way people listen to this music is not by picking a single here and there, but putting on some sort of extended-length piece (usually a CD, or playlist, or radio stream, or mix-tape) and doing other work. I do sell compilations.

However, some of our partners do sell singles, and we're about to put all of Magnatune's catalogue on iTunes and emusic. These companies seem to have business models which survive single-song-selling, so more power to them.

Q. Is bandwidth a major cost for you?
Yes, huge. We have 300mbits/second that we use most of the day as well as several racks of computer gear.

Q. Do you see any limit on the number of artists Magnatune can represent?
Yes, in order to be financially meaningful to its musicians, Magnatune must pay at least $3000 per year to each artist. Artists promoting us, and making special recordings for us, are key to our success, so I cannot divide the revenue pie up among too many musicians.

Also, the rate at which we add music is limited by the quality threshold we place on submissions, currently allowing about 1 in 30 submissions to be released. So we literally listen to hundreds of artists each month to pick the 10 to 15 we release each month. µ