Magnatune Memberships : the only "all you can eat" DRM-free music subscription service

A few days ago, the Magnatune home page changed and began offering all you can eat memberships for a monthly fee. I didn't announce it on this blog right away, because I wanted to make sure there were no problems with it and also to see what everyday visitors would make of it (and how it might affect our sales).

The best explanation of the new membership offerings is at this page:
http://www.magnatune.com/compare_plans

I've written two quite extensive FAQs for the two kinds of membership plans, which should hopefully answer most questions. I will of course update it as new things pop up.

In this blog entry I'd like to give you some of my preliminary analysis of how the membership offerings are going.

---

Preliminary results

Currently, almost everyone who is signing up for memberships is going for the pay-three-months-at-a-time download membership. We are selling enough of those every day to represent 150% increase on daily revenue (that's without announcing it, just converting everyday visitors). That's really tremendous, and I hope that keeps up.

The numbers should get even better in the future, because right now we have just started the service and thus there are no renewals coming in. In three months, each day we should have new members signing up, but in addition to that some percentage of people who signed up three months ago will be renewing. Our task will be to make sure that the Magnatune membership is compelling enough that people want to renew after their three months have expired.

In the first 12 hours after we announced the membership feature in our newsletter, 15 people signed up for download memberships (that's when I'm writing this blog entry) and one streaming-membership for 3 months ($27). One of those bought a lifetime membership ($294), all the others are three months at a time ($54/every-three-months).

Of those 15, four of them (27%) are people who have never bought from Magnatune before, which I am particularly pleased by: this means that we're reaching an audience who otherwise was not interested in what we were selling them. Six of these people (40%) were frequent buyers, having bought between 8 and 12 albums in their history with us. One person had previously purchased 24 albums (appropriately, the person who bought the lifetime membership). The remaining 4 people (27%) had purchased between one and four albums previously. (update: after 24 hours, we sold 24 memberships, of which three are lifetime-download-memberships [ie worth $882 !])

The minimum fee for the download membership is $54 (this gives you a 3 month membership), and this represents approximately 7 albums at about $8. That means that even with the 40% who were already frequent buyers, Magnatune does okay. Granted, the average for that heavy buyer group is 10 albums, or about $70, so if most of them cancel within three months, then we are down $16, but I doubt that most of them will actually cancel. They are probably joining because they like downloading lots of things from us, that's why they've previously purchased so much.

Declining Conversion Rate

Our "conversion rate"--the number of people who buy divided by the number of people who visit--has been declining steadily while our audience size has been increasing. At this point only one person in 300 who visits Magnatune and listens to music actually buys. When I started Magnatune the ratio was 1 in 32. This means that we need to do a much better job of converting people who enjoy listening to our music into people who support us financially.

One reason I think people have been decreasingly likely to buy over the past five years, is that more and more people listen with their computer and not with a dedicated hi-fi and CD player, something that was not the case when we launched. What this means is that instead of evaluating our music on their computer in order to buy it and play it on their hi-fi, people simply listen to the free versions forever. I'm fine with a certain amount of that, but bandwidth is expensive, and I created Magnatune to build a business model to help musicians survive, so at some point some percentage of people need to buy in order to keep us alive.

I've found that Amarok and Rhythmbox listeners, for example, are extremely likely to purchase, while people who listen to our radio stations on iTunes or our podcasts are extremely unlikely to buy. That's probably a function of both the demographic (Linux users are much more into our philosophy) and how active they are listening (iTunes radio just plays in the background)

Streaming not so popular, everyone seems to love downloads

I think the reason that people are not buying the streaming membership at this point is because people are used to visiting the Magnatune website and simply ignoring the "commercials" at the end, which are hardly obnoxious. I will be making one change soon to the free site: song number three of each album will soon have 30 second "commercial" about our membership offerings at its end. My goal is to enable people to listen for free so they can decide to purchase an album at a time if they so choose, but to make it slightly less tempting for people to visit and never buy an album.

Another reason I think people are not buying the streaming membership is because it feels odd to pay to listen to music that is on a website. You already can listen on our website, so why pay for something that isn't all that different? At the same time, people have told me they don't want to download music most of the time, they just want it available to them.

What I hope to do to solve this is to make the entire streaming music catalog from Magnatune be imported directly into your favorite music player. This way, you can listen to the local MP3 files that you already own, and the albums and songs from Magnatune streams, as if it were all the same thing and on your hard drive. It's the idea of a "music cloud" -- it's available to you, you don't really sweat the details of exactly where or how.

For example, iTunes treats streaming MP3 files and local MP3 files identically in the catalog. This means that Magnatune could import all its albums into your iTunes library, so you can click to listen to your music inside iTunes, organize it as you wish, it's just that the MP3s are not on your hard drive, they are streamed when you listen. I'm pretty sure this is possible with Winamp, but less sure about Windows media player.

Myself, I'm not that into having to carry a hard disk of MP3s everywhere, but at the same time I don't tend to visit web sites listen to music. I would really like to be able to just use iTunes to listen to the mix of albums I have that are local MP3s, along with music that happens to be on a remote Internet server, not having to figure out what is where, it just works.

Personal Podcast idea

Another idea I have is to have a "personal podcast feed" for each download subscriber, so that instead of having to manually download each album you like, you can simply click a "add this to my podcast feed" button, and the album automatically downloads in the background into your iTunes, Winamp or Windows media player.

Because the album is considered a podcast by your desktop software, your iPod or other MP3 player can automatically add the downloaded album to itself. In this way, the download membership would allow music to flow directly from the Magnatune web site into your iTunes and iPod just as easily as the iTunes music store (actually a little bit easier since you didn't have to choose to pay for it). Also, it means that if you choose to download several albums, you don't have to wait while it happens, it just occurs magically in the background.

Tweaking the home page

After the first 24h since announcing membership, I found that we sold 30% less albums than we typically do after an email newsletter, however the membership signups were so strong that we brought in twice the revenue that we normally do.

I don't think the membership offerings are what has reduced album sales. Instead, I think it's because of the changes I made to the home page, that don't make listening to music as obvious as it used to be.

Here is what the old home page used to look like:

versus the new one:

on the old home page, the central part of the page was dedicated to listing music genres, which I think was a much more compelling immediate action for new visitors to take, rather than reading about what we're selling you, which is what the new page does.

Further proof of the damage done by the new home page is this chart:

which shows daily album sales before and after the new home page.

In a few days, once the effects of the email newsletter have worn off on daily sales, I'm going to try a new home page, that uses the music-genres-in-the-center approach, and mentions that what-we-sell in a much less prominent way. Probably, the what-we-sell will go in the left hand column, where the genres are now in the current design. I'll let you know how it goes!

To conclude

So far, I'm really enthused by how well the memberships have been going. Before we announced them, they had led to a 150% increase in revenue. And after yesterday's announcement, we saw a 200% increase in typical-revenue--the-day-after-an-announcement. If we can keep people interested and renewing their membership, Magnatune will be in a very good place, and we'll be growing significantly again.

-john

Comments

[Marac]

Well... You are so optimistic that I am reluctant to discourage you... But... Aren't you a little over-optimistic?

You think that membership subscriptions will compensate for decline of sales. What makes you think that? Three months time is enough to download all the albums the customer likes but couldn't afford to buy before. And then he has a lot of music to listen without a need for renewing subscription.

On the other hand, true music freaks will go for a lifetime subscription, which again won't secure you repetitive income.

I personally have already chosen several tens of albums that I like, which I didn't buy yet, because of limited funds and having much music to listen to from other sources.

I plan to go for a lifetime subscription, but only because I respect magnatune and your concept of no-evil and trust-your-customers business model and want to support you this way.

I'm afraid not everyone is so supportive...

If I didn't care about it (or you were one of evil majors ;-) ), I would go for a three-month subscription, download the whole list of my chosen albums and forgot about magnatune for looong time. I definitely wouldn't renew my subscription.

So, I won't be surprised if the majority of subscribers do not renew the service. And new ones probably won't compensate for the decline of sales, because everyone is downloading everything after one-time payment.

Maybe you should consider limiting the number of downloads per month? Just like on emusic. I know it could be considered "less no-evil" by some, but in my opinion it would be still perfectly fair (how many albums one can really listen and appreciate per month?) and would secure you from users abusing the system by heavy downloading and non-renewing. After all, we all want magnatune to live and prosper, doesn't we?

[A Fan]

(john: a fan sent me this analysis via email, which I thought was interesting to repost.)

Congratulations on the new subscription offerings. I've waited for these and I'm glad to see them arrive and done well. I signed up within hours of learning the details.

Here are my thoughts regarding your recent blog post ("Magnatune Memberships: ...").

There are two distinct ways to view the music you can play on the website:
1. previews of the albums, which don't have value on their own but help sell the albums;
2. a streaming music service that has value itself.
It seems to me that the 1-in-300 statistic you gave shows that the overwhelming majority of your customers want to listen to music but not buy it, so it makes sense to adapt to this perception and focus more on the "service" side than the sales side.

Right now the free offering from Magnatune is too attractive. It needs to become less attractive, and the paid offerings more attractive. Here's a draft idea. It's purposefully not very detailed. Also please remember that while some of these changes may seem more "restrictive" than the current Mangatune, most people will not compare them to today's Magnatune but to other streaming services like last.fm, Pandora, etc. It's enough to be better than these.

First we add a new tier of free registration so there are four tiers:
1. Anonymous (unregistered)
2. Registered (free)
3. Streaming
4. Download

Anonymous and registered users can only listen through the website.

The only playing option for unregistered users is a random shuffle of tracks from a specific genre. They can skip tracks but not otherwise affect the playlist. They can browse the catalogue, but to listen to specific albums they have to register. Anyone who cares enough about the music to select what they hear, or wants to sample an album before buying it, would go ahead and register for free. Someone who can't be bothered to do that is very unlikely to become a paying customer.

As a registered user you get to play the full albums like today, but you are limited to some quota like 50 hours per month. You can listen only through the website. This option gives people ample opportunity to preview albums and use the site as a "lightweight" streaming service, but it's still not attractive enough to use a a full-fledged streaming service.

This makes the free offering worse than it is today, but it is better than existing streaming services because you can decide on the exact playlist, and better than existing online music stores because you can listen to complete albums.

As a streaming (paying) user you get:
- unlimited listening
- no track announcements when streaming
- listening through a desktop player
- better podcasts (like today)
- adding albums to a dynamic RSS feed; these will come as 128kbps mp3 with track announcements
- one full-quality album download
This is what most people want and it needs to be attractive enough to make people pay for it.

As a download user you also get unlimited full-quality downloads.

For every album you buy for $9 or more you get one month of streaming membership (without the extra full download). No one is going to both get a streaming subscription and buy an album, since it costs the same to get a download subscription. So it makes sense to offer both (streaming + 1 download) for the price of one, as it adds value to both products and doesn't cannibalize any other sale opportunity.

So the main changes are:
1. Discouraging unregistered usage.
2. Restricting the free offering so it's unattractive as a streaming service without preventing the use for album preview. The main restrictions are a monthly playing time limit and web-only.
3. Making the streaming subscription more attractive, mainly by point 2 but also by adding "preview quality" downloads and one full download.

I hope this gives you some useful ideas.

[rjs]

Re: a fan

If the problem is that there are lots of people who just want to listen to background music, won't the free unregistered random option be just like a radio station, thus providing them with exactly what they want (for free). With the free registration tier it would be nice if this had an OpenID option cause the last thing anybody wants is another username/password combination.

[John Buckman of Magnatune]

One idea I had today, inspired by the fan's email, is to include "one free album download per month with the streaming membership"

That way I really have two kinds of memberships, both of which entitle you to avoid commercials:

1) pre-pay for one album a month ($9/month)
2) pre-pay for all you can eat downloads ($18/month)

The idea being that if you're a "member" you can avoid commercials, and then the options related to how much you want to download.

Thoughts?

-john

[aaron]

I'm certainly interested in the idea of a download membership though I'm not sure I'll go for that price. I figure I basically have two options, first is buy the single 3 month membership, download a bunch of stuff I like, and don't renew. This is fairly affordable but I don't think I'd do it from an ethical perspective. The second option is I subscribe for a full year (or lifetime since that's about the same cost). However, this is over $200 and there's simply not enough music I'm that interested in to justify the cost. Thus I'll likely stick with purchasing directly.

I don't know what the numbers look like from your end but if they were cut to a half or even a third I'd feel a lot more comfortable getting a subscription and keeping it after the first 3 months. I don't think I'd be willing to spend $54 on a 3 month subscription when I already have all the music I'm interested in and have no idea if I'll be interested in anything new coming out, but if it's only $20-$25 I'd probably keep going.

On the free side, if you are interested in adding an extra 30 seconds onto the ends of the tracks perhaps instead of just magnatunes ads you could have sponsors or some other form of ads? They'd need to be extremely innocuous not to annoy people away of course but if done right that could make the free-only people still generate some revenue.

I will note that a 30 second anything at the end of each song might interfere with my current purchasing practise which is to download the album and add it to my mix until I know if I like it enough to buy.

Perhaps using long ads for the live stream, but keeping the shorter ones for the direct downloads (as you don't keep paying bandwidth for people downloading the mp3s)?

[Daniel Barkalow]

I'd guess that iTunes listeners don't buy as many albums because iTunes as a program makes the assumption that, if you're listening to something as an mp3 through it, you have nothing left to buy. IIRC, the Rhythmbox and Amarok support for Magnatune includes support for buying the album containing the preview track you're listening to. If people listening to music from Magnatune often have flashes of "I simply must own a copy of this", being able to make a purchase instantly is a big factor. I think there would be a value in having something like a 3-second note at the beginning of preview tracks, so that, if you have previews shuffled into other stuff and only audio, you're while listening to the music that you have a purchasing decision available.

Also, I think there's something wrong with the 30-second commercial; on my system (audacious on Linux), it seems to be a 15-second commercial voiced by one of the chipmunks. I suspect some non-portable method of pasting together MP3s. Aside from that, I think your commercials are great. I think Beth Quist sounding like a cheetah is the best thing ever, and I'd love to know what your London neighbors think of the music on Magnatune.

[paul]

My own buying/listening habits go something like this (I'm not saying they're GOOD habits, and I'm not saying I'm typical, it's just what I observe whether I like it or not):

1. I hate streaming, I have no interest in it at all. I don't want to listen to music over the internet. It has to be on my hard drive or portable player before I start listening. Occasionally if I'm not sure if an album description sounds interesting I might stream 10 seconds or so to get an idea of what kind of music it is, but that's it, at that point there is a download/don't-download decision.

2. My basic unit of listening is the CD. I usually listen to entire CD's from beginning to end, not to individual tracks. I have several players with a "shuffle track" feature (play tracks in random order) and the feature just boggles my mind, I've never used it and could never imagine using it. Combined with #1 above, I usually don't listen to anything without first downloading the entire CD.

3. My basic method of surfing magnatune is I look at the "recent additions" offerings. If an album looks promising (attractive enough that I'd likely buy it in a record store back when I was buying records) I usually buy it and download it. There's no fixed definition of "promising" but good signs are if the music or performance is by a composer or performer I've had some exposure to and liked. If the album looks interesting (this is looser than "promising") I'm not ready to press the "buy" button but want to give it a whirl by listening to the mp3's.

4. When I listen to mp3's as above, I do it by downloading all the tracks from the cd before listening to any of them. Then I listen to the tracks all the way through (unless I dislike it enough that I quit early). The ability to download all the tracks is a major reason I keep coming here. If I could only download single tracks or samples, I probably would give up on this place.

5. Sometimes I enjoy a freeloaded cd like that above enough to keep playing it. What I'm supposed to do at that point is buy a download and get the flac. This is what I mean by I don't approve of my own practice: I tend to not actually buy the download. That's not a calculated act, I'm just lazy and/or cheap. But now the artist is on my "promising" list, so the next time they put up a cd, I tend to buy it without a pre-listen. Maybe that makes up for some of the freeloading. I discovered Jami Sieber that way and I think I freeloaded one of her albums then bought the next two. She has a new one up and maybe I'll buy it, though I'm not into that musical style so much these days so will let it slide for now.

6. Obviously this gives a financial edge to: 1) performers with more than one album (if I'm going to freeload the first one and pay for the others, it helps if there are others to pay for); 2) performers who play pieces by well-known composers. E.g. I think I bought Janine Johnson's Goldberg Variations cd without a pre-listen because I like those pieces and I only had proprietary versions before (the two Glenn Gould recordings plus Wanda Landowska's and one or two others), even though I had no idea who Janine Johnson was. She got her first sale to me courtesy of Mr. J. S. Bach. Then I liked her playing so I bought her cd of her own compositions.

7. I think yet another reason Magnatune revenues may be suffering, though, is there is now a ton of high quality free music online. I don't know if there's any answer to that in the long run. I keep buying stuff here as a longtime fan but I haven't bought a major label cd in at least 5 years and mostly don't miss them (f* the RIAA). But it could be that magnatune is in the same position as an online subscription fiction magazine: even if it eventually proves unsustainable it's great that it's been successful for a while.

8. I'm not terribly attracted by the subscription thing. I like to stop by once in a while (usually when there's a batch of new releases), download a few albums (paid or unpaid), put them on my portable player and they keep me satisfied til my next visit. The money saving aspect of a subscription doesn't matter to me much since my total number of purchases is not that high, so I can afford to keep buying them a la carte instead of dealing with yet another membership to something even if it costs me a little more. Of course if you had much more frequent releases of stuff that I wanted to buy then the cost would start to matter, but obviously your own sales figures and availability of materials controls what you can release. (If it helps I have a fairly endless willingness to buy standard classical repertoire including re-releases. The Shlomo Mintz and Lara St John cd's are awesome and it's great that you were able to acquire them.)