Magnatune as a wholesale music CD distributor

It's a fact of the music industry that the only record companies making serious money are those who have their own distribution networks. Being a small record company making CDs, going through a distributor, costs you about $3 per CD, lowering per-CD margins from $9.50 to $6.50. Bankruptcy and failure-to-pay are also common among distributors, further stressing small record companies. This has been the major reason Magnatune has stayed out of the making-CDs business.

However, a large percentage (perhaps half) of our musicians have manufactured their own CDs already and need a way to sell them. At $1.50 per CD manufacturing cost, there should be a way to profitably do this.

Starting in January, Magnatune will be warehousing our musicians's pre-manufactured CDs and offering them through our site for resale, thereby becoming our own distributor and trying to establish our own distribution network.

Our goal is for smaller shops, such as clothing stores, jewelry shops, art galleries and cafes, to order 10 or 20 of a mixed set of our CDs, for sale on their premises.

I plan to launch with extremely aggressive pricing (probably in the $6 to $8 per CD range (depending on quantity ordered), compared to $9 (a typical price) per CD from a distributor and allow purchases as small as 10 CDs, with the ability to mix-and-match artists to meet the minimum order size.

I'll be paying artists $1.50 to cover their manufacturing costs (having paid to make the CDs), and will split the rest (which is profit) 50/50 with them. An $8 CD sale, would yield $4.75 for the artist, which is a healthy 3X markup on their cost, yet still reasonable for the purchaser (a $6 sale yields them $3.75).

The "Bulk CD Ordering" page will be promoted as part of the checkout process, and I will let consumers use it as well. This feature should launch in late January.