New Business Model for Magnatune

Magnatune relaunched itself today with a new business model. We're now in the no-limits membership business.

Why the change? Simply put: membership today accounts for 74% of our revenue. Over the past two years our album download sales have declined while the unlimited downloads memberships have grown.

The two graphs below spell out a clear message from our customers:

We don't want to buy your downloadable albums one at a time, we want unlimited access. And we're willing to pay.

Here is our revenue over the past two years, comparing downloads vs membership:

here is the same data, this time charting each as a percentage of total revenue:

You can see that download revenue has decreased in both relative and absolute terms. In contrast, revenue from memberships has grown 80% in the past year alone. I don't know of any other long-lived Internet music services that are experiencing our kind of revenue growth.

We've also simplified our product offerings:

• Our CD manufacturer has become very unreliable (presumably because of financial problems) and so we've decided to stop selling CDs. They accounted for 4% of our revenue and were also declining. Most people who want CDs simply download the WAV files from us and burn their own.
• Streaming memberships are no longer being sold. The download membership, even though it was twice as expensive as the streaming membership, was chosen by 92% of our customers. People who already have a streaming membership can continue with it, but we won't be offering it to new members.
• We have decided to stop selling single-album downloads completely
• Download memberships are now a simple $15/month, and cheaper still if you choose to prepay more more than 3 months. $15.08 was the average of all the "pay what you want" download members, and the price seemed more than fair, so we choose to simplify and go with a flat $15/month.

So really, it's not so much that we're changing business models, but rather that we introduced "unlimited memberships" two years ago, and they've been so successful we're deciding to focus on that.

Some things that are not changing:

• We're still not evil: we have always paid 50% of membership fees to our musicians, been DRM free, and used Creative Commons licensing. All that stays the same.
• We will continue selling commercial use licenses of our music, though in a few months we will be moving that business to a new music-licensing web site we're building (iLicenseMusic.com).

I'm personally really excited with the change, because 4 years ago I noticed that our download sales were declining, and it wasn't until 2 years ago that I finally figured out what people wanted. Magnatune has been going since 2003, and the future looks rosy.

-john

Comments

[L]

Glad to see Magnatune is expanding again.

As a download member, my occasional concern is that my downloading tends to be a little clumped together in one month (when I get a chance to find new music). It might make sense to base artist revenue not off of per-month downloads/streams but three month averages (at least for those of us who pay for several months in advance). The disadvantage, of course, is that it takes longer for the musicians to get their money.

[sleepybluekitty]

What happened to the free download of the day? I am still receiving e'mails but can't download for free?

[tadeusz]

How do I upgrade from streaming (that is being phased out) to download membership?

[John Buckman from Magnatune]

re: How do I upgrade from streaming (that is being phased out) to download membership?

Two ways, either:
- click on the "download" button on any page at stream.magnatune.com and you'll be presented with the upgrade offer
or
- go directly to http://stream.magnatune.com/member/change

[John Buckman from Magnatune]

re: What happened to the free download of the day? I am still receiving e'mails but can't download for free?

I had removed the link from the home page for one day, and it's back now. However, it's no longer on every artist page at magnatune, as that seemed like overkill.

-john

[abuela]

I am SO glad to see Magnatune going this way. And that you have not restricted us to PayPal. I am a longtime fan / supporter / member, but dropped out of download membership when you did that. Now jumping back on board with a smile.

[PascalNogues]

Magnatune is one of the perfect examples of what the digital entertainment industry must do.
I'm glad of your success : simplicity, quality, interesting price ...

Congratulations!

[Radomir]

"Still not evil". Sounds like you plan to become evil later? :)) Keep up the good work, 250$ that I put in to be a lifetime member is turning into a best music investment of my life.

[Matěj Cepl]

Hi,

I just want to add one plea for preservation of the direct album downloads for non-members. I do listen a lot to free streams from Magnatunes and you are my first stop whenever I want to buy some gift or some music for myself. However, I don't think I can afford Rhapsody-like (albeit not evil) subscription. You are very good in what you do, but unfortunately there are still plenty of areas which I am interested in which you don't do and probably won't do for a long time (a first-class full-size symphonic orchestra playing Beethoven's 9th on the level which competes with Deutsche Gramophone). Nothing wrong with that, but until (if ever) you manage to be able to compete with big labels on their turf, I probably cannot designate Magnatunes as my ONLY source of music and I don't think I can afford full membership otherwise.

Best

Matěj

[Otto de Voogd]

The streaming membership just made no sense to me, and so obviously I got myself a life time download membership. Paying per download also didn't make sense, a monthly download membership being only slightly more expensive is clearly a better option. But maybe that tells you that single downloads are simply priced too high.

"It might make sense to base artist revenue not off of per-month downloads/streams but three month averages"

This is something I also feel would make more sense, downloads tend to be clustered in periods of higher activity - some months may see very little downloading. I would feel more comfortable if I knew artists were payed based on the average of 3 months worth of downloads.

[z]

I think that this is a good change for subscription members (due to the new price), but I don't know that it really changes much in the long run. I have held off on the subscription over the past two years because I'd just rather give my $12+ to a particular artist that I've really appreciated. So, while the minimum has increased from $8, it doesn't really affect those who pay higher than minimum anyway.

Not a bad idea though, since the member price is more attractive now than it was before.

[Dan Hergott]

Is the lifetime membership really for a life time, or is it for two years?
Your web site member info leads me to believe that a lifetime is really only two years.

Please clarify.
Thanks

Dan Hergott

[Geoff]

Glad to hear Magnatunes is going strong. I recently took out a lifetime membership and agree with Radomir that it is a good investment - especially for newcomers now it is a little cheaper.

I'm not sure why it is listed as $10 per month for 2 years - why not $2 per month for ten years, or $1 per month for 20 years or...? Perhaps it is because people have short time horizons. Hopefully Magnatune will be around for a long long time. I guess the risk is that if most people take out the Lifetime option then the revenue stream will drop unless there is a constant supply of new members. It is not in the interest of Lifetime members for Magnatune to not be profitable and go out of business! I hope if that were to ever happen that we would be given plenty of notice so we could go crazy downloading... as it is now I have been downloading a lot of albums in mp3 format to preview on my mp3 player with the intention of later downloading my favourites in flac or wav format for burning to CD to get the full quality recording.

[Jonathan]

Why the change to fixed-price? I liked being able to choose what an album was worth.

[mattermind]

I recently signed up for a 3 month download subscription at the minimum $10/mo with the notion that I would use the non-download URL to also buy any albums I really liked. I hesitated to commit to paying more for the subscription when I mainly use Pandora and Lala.com (both for pay) and I already have a large music collection. (So far, I think I only listened to one magnatune download all the way through.) I guess what would be best for me would be a subscription with download limits, larger streaming limits, and the option of upgrading to unlimited.

Alternatively, a personalized radio that adapted itself to my ratings might get me to switch from Pandora, because it would be nice to know that for anything I like, I can hear the rest of the album on demand. (I really miss Yahoo Music Unlimited.)

[Ryo]

As long as you offer free formats like Ogg Vorbis and FLAC, everything will be good.

[John Buckman from Magnatune]

re: As long as you offer free formats like Ogg Vorbis and FLAC, everything will be good.

Yes, of course we'll continue to support these open formats.

-john

[John Buckman from Magnatune]

re: I'm not sure why the Lifetime membership is listed as $10 per month for 2 years - why not $2 per month for ten years, or $1 per month for 20 years or...? Perhaps it is because people have short time horizons.

I received a few emails from people who were confused by this. I had listed the $240 at the equivalent as $10 x 2 years to compare the lifetime price vs the other offerings. However, in the end, this just ended up confusing people, and so now it simply says "$240 one-time"

-john

[Djaron]

i fail to figure out how artist share will be calculated in an lifetime membership

[John Buckman from Magnatune]

re: how is the artist share calculated with a lifetime membership?

This is explained in the faq:
http://magnatune.com/info/faq_download#musicians

and the answer is:
"In the case of the lifetime membership, musicians are paid as if you had a five year membership, so that they get paid sooner rather than later."

-john

[ninja]

John, you missed out figure 3:

http://lh3.ggpht.com/_AhbS-IwmUAY/S7TGUZZ13cI/AAAAAAAAAlc/TBrxpI402OE/s800/6a00d83453035669e201310fb00a6b970c.png

Just kidding - keep up the good work ;)

[Mark]

I'm someone who still believes in owning my music and fair compensation of musicians so I deeply appreciate Magnatune. However I am looking to convert my large classical LP collection to CD/MP3 and Magnatune has only a smallish selection of what I'm looking for: maybe 10-15 albums total.

What's to stop me from subscribing for a month, downloading my 15 albums, then leaving, so I can continue to rebuild my collection? That works out to pretty slim compensation to your artists, even if I stretch it out to 2-3 months. Am I missing something?

[karol]

@Mark
> Am I missing something?
I think most revenue comes through licensing for commercial purposes not membership. Private use is a way to get the music heard, so maybe you want to include a track in your product: a game, a movie etc.

> What's to stop me from subscribing for a month, downloading my 15 albums, then leaving,
> so I can continue to rebuild my collection?
That's a 'legal v. fair' case. I believe you're allowed to do just that, but will you have a clean conscience? :-)

I've just come to this site, so if I'm wrong, please somebody (Mr Buckman?) correct me.

[John from Magnatune]

What's to stop me from subscribing for a month, downloading my 15 albums, then leaving, so I can continue to rebuild my collection? That works out to pretty slim compensation to your artists, even if I stretch it out to 2-3 months. Am I missing something?

The minimum membership period is 3 months, but other than that, nothing prevents you from doing that. Would you prefer that Magnatune use DRM to prevent the 3% of members who do this? (and it is about 3%, as I do track it). I prefer that Magnatune not be evil, and not punish the 97% who "play fair" in order to stop the 3% who don't. And besides, even with that 3% we still made $45 in revenue, which isn't shabby.

As someone else commented on this question:
That's a 'legal v. fair' case. I believe you're allowed to do just that, but will you have a clean conscience?

I totally agree.

-john

[Glyn]

Hello,

I contacted Magnatune about pay-per-album downloads and was pleasantly surprised at the promptness of the reply. I have been chewing it over since and certainly close to buying into this $15 a month (~£10 UK) deal. However I have similar issues to those raised by others, in that if I download more in one month than I do in another, the share to the artists isn't quite as fair as the "do no evil" idea seems to make out. And I'm not sure you have commented on this particular issue yet in response to it. I too would be happy for my money to be taken as three-month average to put more weight behind that as a proposal (one that seems common to the other commentators too). What happens to my $15 if I do nothing for a month?

Also, all your commercials on the free listening stations imply $15 per month but in reality it's a pay up-front for three months deal. I grant you the equivalent _is_ $15 a month but it's not as per advertised claim. And if I purchase at the end of the month, do I get a full three months from that day or do I just get the remainder and following two months? Then, rolling on into the 4th month is it another $45 / three months up-front payment again or do you just transition into a monthly standing-order type arrangement for the $15?

I have searched for these answers but they don't appear to be clearly explained anywhere.

Another thought is, since you pay artists for the commercial-free streams, am I better listening to the commercial-with streams to decide on a download so as to achieve (in my mind) having the artist paid with 'my' money for actually the taking their music - akin to how I buy real CDs to ensure the artists receive their dues.

Lastly I rip my music from CDs to FLAC and MP3 formats so I can have both the full-definition tracks and also a format compatible all portable players. I would like to download tracks in both FLAC and MP3, but with downloads being taken into consideration for payment to the artists, I guess it means they just get two-halves of the same payment had I chosen just a single format download. I guess this is a non-issue but one that does makes my cogs whirr in my head!

I must say though, from the concept of this business model to the quality of the compositions available, Magnatunes has certainly done a fine job - well done to all that make it what it is.

With best regards,

Glyn

[John from Magnatune]

re: However I have similar issues to those raised by others, in that if I download more in one month than I do in another, the share to the artists isn't quite as fair as the "do no evil" idea seems to make out.

I agree, and while currently artist payments are based on monthly payments (half to streaming, half to downloads), this fall I'm switching it so artist payments are based on what you downloaded over your entire payment period. So, if you have a 3 month membership, 50% of your membership fee (ie 50% of $45 = $22.50) would go evenly to the musicians you downloaded. I agree that this seems more fair.

re: And if I purchase at the end of the month, do I get a full three months from that day or do I just get the remainder and following two months?

Good point, I can see how that is confusing. It's a rolling 3 months, based on your own start date.

re: I would like to download tracks in both FLAC and MP3, but with downloads being taken into consideration for payment to the artists, I guess it means they just get two-halves of the same payment had I chosen just a single format download.

You can download the same album as many times as you like, in as many formats as you like. However, for the purpose of artist royalties we only count those all as one download, as that seemed fairest and least susceptible to gaming.

re: I must say though, from the concept of this business model to the quality of the compositions available, Magnatunes has certainly done a fine job - well done to all that make it what it is.

Thanks!!!

-john

[george]

I'm not sure I can afford on-going membership. Can I sign up for a month, download an album I happen to like, then quit, and then sign up at a later time when I find another album I want to get?

[John from Magnatune]

I'm not sure I can afford on-going membership. Can I sign up for a month, download an album I happen to like, then quit, and then sign up at a later time when I find another album I want to get?

The minimum membership duration is 3 months. And yes you can sign up for 3 months, cancel at some point, and the sign up again someday in the future.

-john

[Consultor para empresas]

Magnatune is one of the perfect examples of what the digital entertainment industry must do.
I'm glad of your success : simplicity, quality, interesting price ...

Congratulations!

[Claudia]

Well, I certainly understand the reasons for the change. Unfortunately, for some of us who live in countries where a payment of 15 USD a month is more difficult to earn back at work, I would have loved to still be able of downloading one album at a time now and then. Not all the new music on Magnatune is music that I would really like to own. So I will continue to listen to the new classical albums with advertisments, I guess.

[Mike Kolesnik]

Magnatune, how about expanding your offerings? $15 is a lot for me considering that I purchase from many other sites a-la carte. For instance,
Dance Department(Radio 538) went to a paid podcast which I signed up for.
It is 5.38 Euros per year. How about you think of offering a reduced price paid podcast only? I would definitely sign up since I love your offerings but don't want to get locked into a cable-type bill every month.
P.S I was one of the few that downloaded single albums that you offered in the past.

[John from Magnatune]

how about expanding your offerings? $15 is a lot for me considering that I purchase from many other sites a-la carte. For instance, Dance Department(Radio 538) went to a paid podcast which I signed up for. It is 5.38 Euros per year. How about you think of offering a reduced price paid podcast only? I would definitely sign up since I love your offerings but don't want to get locked into a cable-type bill every month.

We used to have a lower case "streaming membership", but only about 5% of members opted for it, with 95% choosing to pay more to have downloading. So... we decided to focus on what the majority wants.

We're purposely trying to do something very different: there are lots of a-la-carte "we will sell you one album at a time" sites, and there's nothing wrong with that, but we want to do something that nobody else does.

At $15/month for 1500 albums, access to our albums is at 1 cent per album. Even if you only like 1% of the albums, that's still only $1 an album. Pretty good value.

-john

[Robert]

I am very excited to have found Magnatunes! I stumbled across your service when Suzanne Teng's music was used on an AdoptUSkids individual child's recruitment video. At the end of the video was the artist credit and the magnatunes.com website. I immediately clicked over and joined right then. I was a devoted member of another (once) excellent download site called E*Music. After I had been a member for six years they teamed up with Sony to "make more content" available and the cost of albums quickly increased from three to six times its earlier pricing. Additionally, a member used to be able to purchase individual tracks from all the available albums. This policy quickly changed to one where you were forced to buy an entire album when all you wanted was one song. Although many thousands of loyal members begged them not to pursue this "partnership" they did anyway. It is my personal belief that the creators of E*Music were simply given an "offer they could not refuse" and sold out to mega corp Sony Entertainment. The reason I am sharing this story is to plead in advance: PLEASE DON'T SELL OUT to the music industry; Ever.

Best Regards,
Robert (Washington USA)