Magnatune blog: The Online Music Business Space

My newly-hired PR agency asked me to write a summary of the online music space from Magnatune's perspective. I thought the resulting document might be interesting for others to read.

-john

The Online Music Business Space
by John Buckman, CEO of Magnatune.com

Magnatune (www.magnatune.com) - online record label which signs its own artists and sells downloads and print-on-demand CDs through their web site. Unique attributes: 1) allows visitors to listen to an endless source of music (by streaming entire albums, or tuning into Magnatune Internet radio stations and genre mixes) to help them find albums they may want to buy, 2) offers downloads in perfect-quality WAV format, and 3) printable Acrobat PDFs of album art are available upon purchase. Small selection (350 albums) of hand-chosen artists and albums means if you like their music tastes, you'll find much to enjoy, but if your tastes run to elsewhere (no rap at Magnatune, for instance) it isn't for you. Gross sales revenue is split 50/50 with the musicians, no copy protection (DRM) contribute to an anti-music-establishment stance. Besides selling downloads, Magnatune is the only record label on the planet licensing its music for commercial use through its web site. Magnatune's music appears inside the larger catalogs of sites such as iTunes, MSN Music, eMusic and many country-specific music sites (France, Germany, China) and is beginning to be sold through physical products (such as USB Flash drives of MP3s sold through the retail music and computer channels).

eMusic (www.emusic.com) - partners with traditional physical record labels to sell a subscription service where consumers can download a set number of MP3 albums every month, at a very cheap rate (equivalent to $0.40 per song on a monthly basis). No copy protection (all downloads are mp3s), 30 second previews of all songs and strong tools for browsing music. Labels share revenue with eMusic based on what eMusic subscribers actually downloaded. No major labels participate because of the low cost and lack of copy protection (DRM). Catalog is large (but not yet unwieldy) and very eclectic, because of indie label focus. Especially strong in Indie Rock, Jazz, Folk and Metal. Fairly consistent music quality (since only works with labels), though takes all music from any label that approaches them.

Bleep - Warp records on-line store - http://www.warprecords.com/bleep/ - very well respected (electronica genre) traditional record label, now has an on-line store with all of Warp's releases. 30 second previews, high quality MP3s sold (no copy protection). Antiestablishment stance and some hugely successful artists in its genre. Very high music quality. Widely admired as the most successful traditional labels to go on-line.

CDBaby - http://www.cdbaby.com - service that sells any independent musician's physical CDs on-line for a low initial registration fee and $4 per-transaction margin. Consumers can shop CDBABY, order physical CDs and CDBABY takes the order and ships it, taking $4 for themselves and paying the artist the rest. The vast majority of the purchases come from "buy now" links on artist's own sites (few browse the CDBABY catalog as it is gigantic and mostly low quality). Considered great for DIY (do-it-yourself) musicians and has a great pro-musician vibe and reputation. CDBABY claims to sell more CDs on-line than anyone else except for Amazon. 30 second audio samples. The music quality is mostly poor (since any musician can send CDs in) but there are hundreds of gems (Magnatune got its start mining CDBABY). Many Magnatune musicians sell self-released CDs through CDBABY in addition to being on Magnatune. CDBABY also has a digital distribution business where an artist's CD will be sold on iTunes, MSN and many other on-line stores, and CDBABY takes a small 9% margin.

Many "Netlabels" - noncommercial record labels (see http://www.archive.org/audio/netlabels.php and http://www.netlabels.de/) - these are "companies" who release musician's music for free through their web site, or other web sites (such as the Internet Archive) with no intention of ever selling the music for money. Music genre is mostly electronic, with some experimental/noise music as well. Some NetLabels have very high quality music, when one person approves it all (as opposed to accepting all comers). OpSound http://opsound.org is a noncommercial web directory pointing to thousands of no-cost creative commons licensed mp3s on the web (anyone may contribute), with a focus on experimental/noise music.

iTunes/MSN Music/etc - huge on-line stores which sell albums or songs for download. Massive catalogs of many other labels' music, copyright protection (DRM), generally about $0.99 per song. Major label participation. Browsing tools vary, 30 second previews, sometimes (frequently on iTunes) on-line albums are missing 2 songs that do exist on the physical CDs. Audio quality generally poorer than MP3s (though this is changing, i.e. with MSN Music). These stores get the overwhelming attention of the press. Some smaller competitors such as Netmusic http://www.netmusic.com/ and Audio Lunchbox http://www.audiolunchbox.com/ and BeatPort http://www.webjay.org/ are distinguished by an indie-label leaning (and usually sell mp3s w/o copy protection). Some country-specific equivalents exist (such as Koodoo http://www.koodoo.fr in France) with catalogs tailored toward their local audience. (FYI, Magnatune signs distribution deals with most of these companies, and they include Magnatune's music in their catalog).

Rhapsody http://www.listen.com/ and Napster http://www.napster.com/ - subscription services which, for a monthly fee, allow you to listen to all you want from a huge catalog. All music is heavily copy protected and disabled as soon as subscriber stops paying a monthly fee. Poor support for portable players, but works very well when playing from a computer.

licensemusic.com (http://licensemusic.com/) - on-line commercial-use licensing of a large catalog of music from other record labels as well as its own "Charlie" catalog of music they own the rights to. Music selection is eccentric (strong in a few arbitrary areas) and of varying quality (very good in a few genres, but awful in some others [such as classical]). Licensemusic.com is the only other company besides Magnatune offering fully-online (no phone call needed) music licensing. It is unclear whether LicenseMusic is still actively in business as recent visits by the author have encountered web site errors. Some music licensing companies have attractive web sites (http://www.ingrooves.com who represents a number of musicians, mostly electronica) and Warner Bros Licensing http://au.songshop.com/. Interestingly, stock-photography and stock-artwork companies (such as Getty Images) have expressed no interest in the stock-music business.

Garageband.com http://www.garageband.com/ - web site which allows any musician to upload a song, and end-users can vote on their favorite songs. Helps undiscovered artists rise to the top of pile, with garageband's stated intent being the band with a major record label. Garageband's revenue model is to sell marketing services to musicians. IUMA http://www.iuma.com/ is similar but without a obvious business model. Garageband and IUMA (along with CDBABY) are probably the most respected sites for do-it-yourself musicians, and have tremendous street-credibility.

Peer-to-peer programs (KaZaa, Blubster, Morpheus, LimeWire, BearShare, Grokster, etc...) - these companies give away software that makes it easy to find and download mp3 music, and make money showing ads to end-users or by being paid by other companies to install the instrusive software (spyware and adware) along with the peer-to-peer software. Some companies (see http://www.p2pmusicjukebox.com/) sell peer-to-peer software for downloading illegal music, but don't mention the fact that using their software is illegal so that their buyers think they are getting a legal music download service (in the Rhapsody/Napster tradition). The open source world has several high-quality peer-to-peer programs (Shareaza, Kazaa Lite, Poisoned) which are enjoying success due to commercial peer-to-peer companies alliances with spyware/adware. We are starting to see use of the open source "BitTorrent" program used to download CD-perfect WAV file versions of top albums.

Mp3 search services (such as Gigatracks http://www.gigatracks.com/ Mp3Search http://www.mp3search.com/ Epitonic http://www.epitonic.com/) - end users go to these web sites to search for Mp3s (sometimes oriented toward legal mp3s, sometimes not) that reside all over the Internet. Other services such as iRate http://irate.sourceforge.net/ and WebJay http://www.webjay.org/ point users toward legal mp3s on the Internet in a playlist or radio format.

Comments

Thanks for the CD Baby mention. I'd just like to offer a few corrections: CD Baby has 2-minute clips of every song (not 30-seconds). Also we never claimed to sell more CDs than anyone, just more INDEPENDENT CDs. (I'm sure WalMart.com sells more CDs than we do, just not independent CDs.) And lastly, at CD Baby, over half of our sales are now to returning customers "just browsing". I also used to think that CD Baby was powered by the "buy our CD" links on artist's sites, but it's definitely tipped into more browsing-sales than artist-sent-me sales.

Oh and IUMA pretty much shut down 4 years ago. No employees. What's left at iuma.com is a zombie site that hasn't been changed since they shut down. The band on the front page, Griswald, broke up in 2001.

Posted by: Derek at CD Baby | November 05, 2004 at 10:51 AM

Excellent overview of the online world of music.

It will be great if this could somehow reach the press who currently seem to have a very tinted view of online music! They seem to think that at one end there's P2P file sharing networks where teenage criminals hang out to cheat artists out of money, at the other there's (not so) revolutionary new legal services like iTunes who sell music from the big labels, and that's it.

Let's see what this PR-agency of yours is made of :)

tola ^/.

Posted by: Ben Francis | November 06, 2004 at 10:05 AM