Visa no more

A few weeks ago, Magnatune stopped being able to accept VISA/Mastercard payments directly, and switched over to using Paypal as our exclusive payment processor.

You can still buy albums from Magnatune with your VISA/Mastercard. The change is that now it will be Paypal that will charge your credit card.

For one-time purchases, this change is quite minor: you're redirected to Paypal when you make your purchase, and you can use your credit card number there if you like (or your paypal account, of course)

For recurring payments, the change is more significant. Because we can no longer directly charge people's credit cards, we have to ask them to use a paypal account for their membership fees. You have to have a paypal account to have a Magnatune membership, unless you buy a lifetime membership, in which case no paypal account is needed.

---

What happened? Getting slammed by VISA fraud

A few months ago, a bunch of people who trade in stolen credit cards decided to harass the hell out of Magnatune. I'm not sure why they chose to do this, but the cat-and-mouse game that ensued caused enough bad charges on our VISA merchant account, that our charge processor decided to cancel our merchant account.

At the worst of it, we were getting hundreds of fake credit card purchases per day. These people used a different credit card number and a different tcpip address for every purchase. They had the CVV number for each credit card, as well as the billing address. There really wasn't any way to differentiate them from normal charges, except for the huge volume increase in sales that occurred on days when we were targeted (which was most days, for a while).

Each morning, I would go through the previous day's charges and try to figure out which were fraudulent. For instance, the fraudsters liked to buy the same album over and over, using different accounts. Sometimes it would be an artist who normally sells very little, so that was a tip-off. Or, they'd use variations on the same name or password. Needless to say, I didn't catch all the fraud. Since we pay half to the musician, it's likely that Magnatune paid musicians royalties on charges that were eventually rolled back.

The problem got so bad that I made a big change at Magnatune: every new credit card used to buy something would need a 10 minute verification wait, and your purchase success information would delivered by email. That slowed the fraudsters down for about a week, and then the fraud picked up again, with disposable email addresses from hotmail, yahoo and google being used. The 10 minute wait did have an impact on sales, but I didn't really know what else to do to stop the daily fraud.

Because of the scale of the fraud, and the fact that they used a different tcpip address and email address for every purchase, I think these people are highly sophisticated, and probably are using bots to create many disposable email addresses, and possibly zombie machines to "proxy" to magnatune, thereby using a different tcpip address every time. There was no geographical pattern to the fraud.

Eventually, the fraudsters found our "gift card" sales page, which allowed them to put in whatever dollar amount they wanted. Not limited to $8 purchases, they started hitting us with huge numbers of $100 gift cards. That really started to upset VISA.

Meanwhile, VISA was telling us that they would drop us if we didn't become PCI Compliant. The main thing that PCI Compliance requires of you is to not permanently store the credit cards you receive, but instead to pass them onto your VISA processor and then get a "customer code" back from the processor, and use that in the future. That's fine, and a good idea, since it helps prevent the case where your computer is hacked and all your VISA card numbers are stolen.

However, PCI compliance would do absolutely nothing for us in stopping the daily deluge of fraudulent transactions. When someone has the visa number, CVV number and postal address, the charge is going to go through, and the fact that the card is stolen isn't anything VISA can deal with. What is needed is a personal PIN, like they have in Europe for in-person charges, so that a stolen card can't be used without the PIN number. The "Verified by Visa" program does that over the web, which is great, and some processors support it (ours didn't)

In the end, VISA wasn't happy with my answer that "PCI Compliance won't stop this fraud" and so they dropped us.

---

Implications

For one-time purchases of downloads and CDs, there isn't much of a difference. Your purchase gets routed to paypal for credit card processing, instead of our doing it.

For memberships, we can now only take paypal members. If you already have a paypal membership, this is no hardship. If you don't have a paypal membership, you can open one fairly quickly with your credit card.

Unfortunately, the linux programs Amarok and Rhythmbox no longer can buy Magnatune music directly. Those programs allowed you to purchase music by supplying your credit card, and that no longer works. We're working on a different purchasing pathway for those two programs, so that their next versions will allow purchasing again, but in a different way that doesn't involve putting your credit card number in their software.

The biggest implications for us are financial.

We're seeing about 1/3rd drop in membership revenue because of the change, which is unfortunate.

Also annoying is that the VISA processor put our account "on hold" for two months before finally firing us. During that two month period, they didn't pay us at all. After they cancelled our account, they didn't pay us either. So, we're due two full months of revenue from our VISA processor.

What they've told us is that they're going to hold all the funds for 6 months, at the end of which they'll decide how much they want to keep for possible future chargebacks, and pay us the rest. There doesn't seem to be any transparency on this process, and the processor is being quite vague about how it works.

I've just gone through a royalty payment cycle for my musicians. Despite not actually getting paid for 2 of the 6 months, I decided to pay the musicians now for the sales that occurred. Why? Because musicians are among those most affected by the slow economy, and I hope to eventually get the money from VISA. If after 6 months' waiting, VISA decides to not pay us for those 2 months of sales, I will fight it (after all, they're just keeping our money), but I'm hoping that won't happen.

The good news is that I got a call from Paypal shortly after being cancelled by VISA. They were notified about our being cancelled, and so they reviewed our account. They didn't see a security risk with how we run things, and we're able to continue using them. Paypal's fraud department were quite sympathetic to the merchant's problem of targeted fraud, which was a nice change.

So, if you're wondering why we had a lull in new releases for about 2 months, that's the reason... Now, we're back on track and the backlogged releases are coming out on expedited schedule.

-john

Wax Mp3 launches with Magnatune tracks

The irrepressible Lucas Gonze is back from a few years absence with a new project, "Wax Mp3".

Wax MP3 Launched yesterday with the full Magnatune catalog as its music source.

You can see (and listen) to it here.

Lucas tells me that the goal behind the Wax Mp3 site is to be an extremely minimal radio station. You visit the site, it plays music. If you don't like the current song, his "reload" on your browser and you get a new one. Simple idea: just play me music! I like it.

---

Lucas is of course, the creator of WebJay, which was a really wonderful make-and-share-playlists-of-web-music site. Magnatune was a big supporter (I think we advertised on it, actually) because it helped people find the best of open and shareable music. Yahoo acquired webjay in 2006, and then shut it down 18 months later (sigh).

Lucas also originated the XSPF open audio playlist format, which Magnatune supports. This then helped cause the creation of the XSPF Flash Audio Player, which Magnatune used for many years. We now use a Flash player derived from it maintained by the Ampache project.

Anyhow, that's all to say that whatever Lucas does, you can bet it will be interesting. Check out "Wax Mp3" as another approach to finding something to listen to.

B&O Beomaster includes magnatune music

Bang & Olufsen's new product--the "Beomaster 5"--comes pre-filled with a variety of Magnatune music. This allows anyone who buys a Beomaster to listen right away. It also means that Magnatune music will be played in Bang & Olufsen stores around the world when demonstrating this new product.

The Magnatune music included on the Beomaster is:

* Barbara Leoni - Don't rain on my parade
* Falling You - Shadow Child
* Five Star Fall - Headphones
* John Williams - Dusty Porch
* Myles Cochran - Hidden
* Norine Braun - Give Me Love
* Shane Jackman - What I did on my summer vacation
* The Headroom Project - Yesterday
* The Seldon Plan - Westchester

B&O have indicated that they'll probably be adding to the included songs over time. They sell quite a few of these to high end hotels, which is another way people will find out about our music (you can listen in your room).

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

Help get our iPhone app approved

I'm a teeny bit worried that Apple may reject our upcoming iPhone/Magnatune app, because they recently rejected another music application for using too much bandwidth. I'd rather not limit the iPhone/Magnatune app to only being used on wifi, because it does work well on 3G as well. And once Apple rejects you, it's hard to get them to give you another chance. So... I want to put our best foot forward the first time we apply to them.

I was thinking that the best way to make Apple happy would be to add a "buy from iTunes" link to the iPhone/Magnatune app. By doing that, Apple won't see us as competing with them, and instead will see us as helping promote sales of our music on iTunes. You can buy music directly from the iPhone, and it will sync back to your iTunes folder. Plus, all of the Magnatune-supplied music on iTunes is DRM free.

But... I need some help.

I need somebody to spend an hour or three matching up each album at Magnatune with a URL to the right iTunes store page.

What you need to do is for each and every Magnatune album, go to the iTunes store, find the appropriate album, right click on the artwork, and copy the URL. Then, put the URL in a document to me, clearly labeling what Magnatune album it belongs too. I can then put that into our database. Sometimes, the album is available from iTunes directly from the musician, and not through us, which is totally fine (as in the example on the bottom of this blog entry). About 2/3rds of Magnatune albums are on iTunes through us, and the rest should be also available on iTunes, through arrangements the musician made on their own.

For example, the album at:

http://magnatune.com/artists/albums/fogelberg-karooshi/

can be bought from iTunes at this url:

http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewAlbum?id=65926663&s=143441

-john

---

Update: a big thanks from me to Chris Allen and Chris Harvey for volunteering to do this and getting it done (and nicely done too) in just a few short days. Thanks Chrises!

---

Membership without obligations

In a previous blog entry, I wrote about how you can now choose how much you want to pay for an all-you-can-eat Magnatune membership. These memberships let you listen and download everything on Magnatune, without any limits.

From today on, you are no longer required to commit to a 3 month minimum: you can have as short a membership as one month.

Also, since the majority of people pay for memberships using Paypal (vs credit cards), we now support Paypal's recurring payments feature, so that you can choose to auto-renew, yet retain total control over billing by being able to cancel from within your Paypal account.

I've been working with Leah Belsky (from open-source-philosopher-guru Yochai Benkler's group), to phase in each change at Magnatune in a controlled-experiment kind of way, so that both Magnatune (me) and the academics (Benkler's group) can get data that is meaningful, quasi-scientific and which hopefully leads to insight.

The final step in this transition happened today.

Memberships to Magnatune are now:

1) no commitment: one month at a time, whereas previously the minimum was 3 months

2) pay what you want: you fill in the amount you want to pay (no drop down box), though there is a $5/month stream membership minimum, and $10/month download membership minimum.

3) paypal recurring payments: use paypal recurring payments instead of a credit card, so you are completely in command of your membership, and can cancel it from Paypal if you like.

4) non-recurring and recurring both available: you choose whether you want your membership to auto-renew, or if you want to renew it by hand yourself

5) DRM free, Creative Commons licensed, and perfect audio quality: so you are free to enjoy our music as you wish

6) shareable music with your friends: you can share music you've obtained from your membership with your friends, though we ask you to be mindful of our business model and recommend you share no more than one album per friend per month

7) Everything: complete access to all our music. Downloads, 4h podcasts, streaming, iTunes & Amarok & Rhythmbox & Songbird support, and more.

8) Musicians get paid: with everything you do, 50% of your membership fee goes to the musicians you listen to. Magnatune remains fair to the musician.

This is no "fire sale", this is a post-scarcity business model that we have been adopting, and let me say that it's been working really well for us. I'm continuing to see a lot of people join as Magnatune members, and can proudly say that each day, we make twice as much money from our memberships than from our download sales. Memberships have quite literally turned our business around, so that we're growing strongly again.

We're simply continuing to face the "Internet Reality": a world where everyone has more music than they know what to do with (from Bittorrent to Last.fm and beyond). The way to compete in this new world is not try to create artificial scarcity, but offer something better than what is available for free, in all ways that we can think of.

In other news, we're putting the finishing touches on the Magnatune iPhone Application. You'll be able to listen for free to all Magnatune albums. Non-members will hear my slightly-annoying voice at the end of each track, telling you what you just heard, while members can enjoy all our albums, commercial free, on their iPhone. Assuming that Apple accepts the application, it'll be an easy download from the iTunes Application Store.

The best things happen in Sweden

I recently returned from 10 days in Sweden, speaking at two conferences.

The first conference was the Nordic Cultural Commons Conference organized by open-law wunderkind Herrko Hietanen. I got to reconnect with the always-inspiring Paul Gerhardt and his Archives for Creativity Project and pontificate leisurely with him about what "Britishness" is, while the conference organizers had us drinking champagne several hundred feet underground in Stockholm, in a former top-secret nuclear reactor lab called "R1". Victor Stone of CC Mixter was there, and he and his wife provided the ambient audio/video to the nuclear-reactor party.

I got reconnect with both founder and also the current head of Pirate Bay, since we were on the same panel together. A few hours drinking mojitos with Rickard, the head of the Swedish Pirate Party. At the first night's dinner, the quiet unassuming lawyer sitting opposite me turned out to be Till from the GPL Violations project! Also got to spend time with Timo from Star Wreck, who is working on his new film Iron Sky. I might get involved with Star Wreck 2, helping them fight evil in the movie business.

Stockholm is incredibly gorgeous: 11 islands, bridges & water everywhere, grand buildings. A cuisine that is clean, fresh, light and honest. Ate twice at two of my favorite Stockholm restaurants: Wedholms Fisk and Lisa Elmqvist which is inside one of the great food markets of the world: Ostermalms Saluhall.

This was one of the best conferences I've ever attended, perhaps not surprising as one of the other all-time-best conferences was another one in Finland: OpenMind 2006, where I met Herrko, the Star Wreck boys, Vili Lehdonvirta and Andreea Chelaru. Finland creates wonderful things.

In Stockholm I participated in a panel and gave a talk. The first panel was the much-anticipated "REVOLUTION OR REFORM - debate on pirate movement and copyright reformism. A video record of that panel is available at
http://video.google.com/videoplay?docid=-3700025533865609299.

I also gave a presentation entitled "Money for Nothing: building on the Commons for fun and profit" about Magnatune and BookMooch. The slides to my talk are downloadable, and the video is also up at:
http://video.google.com/videoplay?docid=-5540725595751786822

---

Next I went to Gothenburg to the FSCONS conference, which was a joining of the Free Software Movement and the Open Culture Movement. Many interesting talks, but by far the best were those by Smári McCarthy, including a brilliant keynote he did about Crowdsourcing Democracy: : applying the lessons of open source culture to governance.

The video of my presentation: "Squeezing the evil out of the music industry" is available here:
http://giss.tv/dmmdb//player.php?ID=527

and the slides to that presentation may also be downloaded.

All the videos from the FSCONS conference may be viewed here:
http://giss.tv/dmmdb/fscons

---

Just before the Swedish conferences, I was in Frankfurt attending & speaking at the Frankfurt Book Fair, about BookMooch.

My slides from that presentation are downloadable and a video is available here:
http://video.google.com/videoplay?docid=1508516227510460766

Pay-what you want memberships

You can now decide how much you want to pay for your Magnatune membership.

Previously, a download membership always cost $18/month, now you choose how much you want to pay.

Also new, is that you can now type in the amount you want to pay, rather than having a drop-down list of pre-filled choices.

The idea for a "fill in box" for the amount you want to pay comes from a lunch I had a few months ago with the quite brilliant Leah Belsky, who (among other things) is a researcher at Yale University for open-source-philosopher-guru Yochai Benkler.

She told me about some research which showed that people choose a higher amount to voluntarily pay, when they are faced with an empty box to fill in. She also explained that a small percentage of people elect to pay a *lot* more if they can. A list-box of choices doesn't allow you to put a much higher amount in, and so stops those people from paying what they want.

Leah has since published a paper on the topic, which features Magnatune as well, it is entitled: "EVERYTHING IN ITS RIGHT PLACE: SOCIAL COOPERATION AND THE PRODUCTION AND DISTRIBUTION OF CREATIVE WORKS"

Leah convinced me to only change one thing at a time on the Magnatune membership page, so that there would be useable before-and-after numbers that academics could gain insight from, and see what the results are of this experiment.

There are a few other new aspects to the membership page:

1) the previous signup page was on several pages, and this caused confusion. For example, people wrote in saying they didn't see how to get a lifetime membership (it was on the 2nd page).

2) you can now choose whether you want to have your membership renew automatically, or not renew at all (in which case you need to renew it yourself, by hand).

The idea for this comes from my friend Stephen Hill, who runs the legendary Hearts of Space radio show and hos.com music service. He has been running a music subscription service far longer than I have, so he has the good fortune of experience and insight.

Stephen persuasively argued that people are much more comfortable making the choice of renewing vs not-renewing themselves, and that the number of members I would lose because they didn't renew, would be more than made up by the increased number of people who became members because of the softer-sell approach.

At hos.com, you get a small discount if you choose a longer term membership, or to auto-renew or not, typically just a $1/month savings. His signup form has a lot of options, but he told me that people really appreciate being in control, and seeing everything at once.

So, my thanks go out to Leah and Stephen, for sharing their thoughts with me, and helping make Magnatune a wee bit better.

Here is what the new membership signup page now looks like:

100 recent albums

I've made a playlist of the 1st song of the 100 most recently released albums on Magnatune.

This makes it easy to listen to what's new, since you can quickly scan a bunch of music to see what you like.

The player is on the "new releases" page, which you can find by clicking the "newest albums" link on the home page:

which takes you to this page:

and the 100-recent-releases player looks like this:

Note that put the GENRE: a the beginning of each track name, so you can skip the types of music you don't like.

This week, I'm also going to try including this "new releases" player in the new-releases announcement email, so people can listen to the new releases inside their email program. We'll see if people like that or find it annoying.

Braid video game launches to acclaim with Magnatune music

The video game Braid came out today for the Xbox Live Arcade to rapturous reviews, such as this one from PC Gamer Magazine (UK): "Braid is an ingenious and startlingly creative puzzle game, built with an understanding of good game design that even some of the industry's most revered figures could learn from."

The music in the game is licensed from Magnatune and the Braid Blog lists all the sources.

The music used in the game is:

* “Maenam”, by Jami Sieber, from the album Hidden Sky.

* “Undercurrent” and “The Darkening Ground”, by Jami Sieber, from the album Lush Mechanique.

* “Tell It By Heart” and “Long Past Gone”, by Jami Sieber, from the album Second Sight.

* “Downstream”, by Shira Kammen, from the album Music of Waters.

* “Lullaby Set”, by Shira Kammen and Swan, from the album Wild Wood.

* “Romanesca”, by Cheryl Ann Fulton, from the album The Once and Future Harp.

Here is a youtube video showing the game play, as well as the use of the music.

A big hearty thanks to Braid for blogging and promoting their use of our music!