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Magnatune: Music as Open Source Shareware (Music Business Model III)

Posted By Barry Ritholtz On October 1, 2003 @ 11:31 pm In Current Affairs,Music | Comments Disabled

Last time we checked in on our Music Business Models [1], we were looking at Weedshare [2], a MLM/DRM/P2P method of promotion and distribution of music.

Today, we check out Magnatune [3], a relatively new entrant to the burgeoning field of creative music industry business models.

The two key business issues the music industry has been confronting from the ‘net are Distribution (getting the music physically in the hands of consumers) and Artist Development and Promotion (finding recording acts and getting the music heard by the public). For lack of a better word, lets call that process “Intermediation.”

Therein lies the rub; On the one hand, distribution costs could be dramatically slashed by shifting to a broadband digital distribution process (as opposed to physically trucking polycarbonate discs). The threat to the industry lies in DisIntermediation of the labels as a method of finding and promoting musical talent.

Which brings us to Magnatune. Hands down, the firm wins the competition for best slogan: “We Are Not Evil.”

Magnatune works off the idea that all music is essentially Shareware; Listen to their MP3′s albums, or try their genre-based streaming radio station. “Preview, evaluate, and pass along good music to others.” I picked a genre, set an internet streaming radio station, and BOOM! nearly 800 songs showed up in my iTunes. As I am writing this, I’m listening to James Edwards’ Chaconne on classical baroque guitar (very nice stuff) from MagnaTune’s site.

Like what you hear? Buy their music online (as little as $5 an album). MagnaTune was “founded by musicians, for musicians.” Artists keep full 50% of the revenues of what gets sold (music, mugs, t-shirts, etc.) And, unlike most labels, the artists keep the rights to their music. Pretty neat set up.

Magnatune’s model essentially is a power grab by artists to take back the ownership and profitibility of their music from the major labels. Think about it as an internet based, musician owned, independent label.

Their founder makes this industry observation:

Radio is boring: everyone I know is into interesting music, yet good music is rarely played on the air. I’m into everything from Ambient, Industrial, Goth, Metal to Renaissance, Baroque, Tango, Indian Classical and New Age (and many other genres!), and so are many of my friends. Yet, these genres are barely visible in record stores, and totally absent from the airwaves. Radio is mostly about Country, Pop, and Rock, with a little bit of dull, safe classical thrown in. CDs cost too much, and artists only get 20 cents to a dollar for each CD sold. If they’re lucky. And, most CDs quickly go out of print: I buy more CDs from EBay than Amazon.

Umm, Yes. Radio sucks, and we all like to hear interesting music from people we know. How does MagnaTune’s Business model work?

The Business Model [4]: how we (and our artists) pay the rent.

Our target audience:
People who listen to music in the background while they do other work (i.e. office workers [or any traditional "radio" market]).
Fans of music that gets little radio airplay or major record distribution, but has a fairly large audience.

What we provide for free:
Radio stations of our very high-quality artists, tailored to each listener’s specific tastes.
We make it easy to listen to our music, and what we play is on-genre and extremely high quality.
A simple interface to save your favorite artists and songs; come back to them, build a collection.
A wide variety of music for people who want to license music for commercial use for advertising, films, business, etc.

What we sell:
Downloadable albums at a low price: $5 to $18: buyer determines the exact price.
Sub-licensed music for commercial purposes (i.e.: trade shows, advertising and web sites), priced from $150 to $5000, depending on length and type of use.
Merchandise: posters, clothing, mugs with artist’s likeness.

How the artist makes money:
50% of the sale price of each album goes directly to the artist.
50% of any commercial sub-licensing (ads, web sites, trade shows, films, etc) goes directly to the artist.
50% of merchandise profits goes directly to the artist.
Wider distribution of the artist’s music means more gigs and more fans.

IMHO, their success will be likely be determined by the quality of the acts they sign, and how successful the firm is in promoting those acts.

All told, its a pretty cool idea that’s been running in mostly stealth mode for a few weeks. Perhaps we can help them, get the word out . . .

Sources:
Magnatune [5]

http://www.magnatune.com

Where Music Will Be Coming From [6]

http://www.kk.org/writings/music.php


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/10/magnatune-music-as-open-source-shareware-music-business-model-iii/

URLs in this post:

[1] Music Business Models: http://bigpicture.typepad.com/comments/2003/09/weedshare_music.html

[2] Weedshare: http://weedshare.com

[3] Magnatune: http://www.magnatune.com/

[4] The Business Model: http://www.magnatune.com/info/model

[5] Magnatune: http://www.magnatune.com

[6] Where Music Will Be Coming From : http://www.kk.org/writings/music.php

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