All-you-can-eat tune buffet brings profits

INDEPENDENT online music label Magnatune has seen a surge in profits and customers as more users take up its offer of unlimited downloads for a monthly fee that the customer decides, according to the company's founder.

"Magnatune is now both profitable, and growing quite strongly, under this no-DRM, all-you-can-eat, membership model", John Buckman told The INQUIRER.

"However, in the past two years, when sales were declining, our listenership tripled", Buckman said. "The problem, I eventually figured out, is that the 'shop for a few hours to buy one album' idea is just not interesting to most people any more. We're in a post-scarcity world, there is tons of music everywhere, and so people aren't especially interested in being music librarians, and building their collection one album at a time. The membership feature has been out, but in beta, for about six months, and now outsells our downloads two to one”

Magnatune, founded in 2003, is one of the oldest online distributors of DRM-free music. Its artists have won awards and their music has been licensed for high-profile projects, like the acclaimed soundtrack to the recent hit Xbox game, Braid. However, sales had been slowly declining with competition from companies like Pandora and Last.fm and an increase in DRM-free sales of mainstream music from retailers like Napster and Amazon.

Magnatune gives artists a 50 per cent share of sales of their music and licensing income. Previously, artists got much of their income from the sales of individual albums at buyer-decided prices - generally around $8 or more. But under the new membership system, users can pay a monthly fee, from a minimum of $10, to download any of the label's music, without limit.

Alternatively, they can pay from $5/month to stream the music (playing it from the internet without keeping a copy). These are minimum prices; users pay more if they want to, and many do. The company is also about to release an Iphone app that plays Magnatune music for free.

"The main thing that influenced my decision is that DRM-free is just not enough", Buckman says. "While DRM is never a feature, a lack of DRM is not a feature either. When you remove DRM, people can use the music as they wish, but they still need to be music librarians, worrying about whether they have a backup, how to access the music at work, whether it's on their Ipod, how to listen to it in their car, etc. That's a lot of work. By going to a membership model, I can now supply my music in any way that my members might find useful. That's one reason the Iphone app is coming out: since the Iphone is limited to 16gb of storage, but has a 3G connection, members can access about 120gb of mp3s over-the-Internet, as if they had a large hard-disk-based Ipod with them.”

The new business model has brought some changes for artists, Buckman says. Income from the monthly subscriptions is divided between artists depending on how often the member downloads or streams their music, meaning that artists get much less cash per download than they do under the older pay-per-album system. He didn't say whether any artists had complained about the new system.

"It can be shocking to a musician to receive only 50 cents for a downloaded album, whereas previously they received $4", he admits. "However, under the membership system, many, many more people are downloading a musician's albums, which makes for a significantly larger fan base, and that's pretty exciting for many musicians. Would you rather have 100 people download your album at 50 cents each, in one month, or would you rather sell 5 copies for $8 each in a month? Most musicians prefer to have 100 new fans.

"The problem for most musicians is obscurity, and the fact is that people aren't that interested in buying an $8 album from an unknown artist, whereas if they've already paid their monthly fee, there's no risk in them trying an album out”.

Input from researchers like Yale University's Leah Belsky resulted in tweaks to the site's user interface. “Some research... showed that people choose a higher amount to voluntarily pay, when they are faced with an empty box to fill in [instead of a list of choices]. She also explained that a small percentage of people elect to pay a lot more if they can”, Buckman recalls.

The site also doesn't show the user the minimum price unless they try to go below it. In fact, all this unaccustomed freedom causes an unusual headache for some customers – they are afraid to pay the artists too little, even when they can't afford to pay more.

"I signed up for the unlimited download for three months and canceled because I couldn't afford another $54, and I actually felt guilty for all the great music I was downloading (no way the artists could possibly get a fair share at the level I was downloading)”, said one, in a posting on Buckman's blog, (pricing used to be $18/month, for a minimum of three months).

“I would like to support new artists but have to live within my budget. I also don't want to insult the artists by making purchases that are too low in price, so I just don't purchase”, commented another. µ