Transcript of interview
From CreativeBusiness
Michael Holloway interviewed John Buckman on Wednesday 14 November 2007. This transcript from the audio record was made by Sam Smith.
MH: We're here to record an interview with john buckman, he is an artist and musician playing various string instruments, as well as a record company executive, but not the typical variety, and we're here to find out how he does it differently. And we're going to start with the basics. So John, Who are you?
JB: I don't think I'm an executive - I think you need a corporate structure to be an executive. But, lets just say, I'm the founder of a record label. What do you want to know? Do you want to know the history, how i got here? Where I am now? Who are you is pretty deep.
MH: That's a pretty deep question. So let's go with what do you do? What do you do with Magnatune today?
JB: I run a very small company with 4 other people where we sign musicians we like - we sign them directly - and they let us market their music either as downloads or cds to consumers, or as commercial licensing to businesses. but really what we do is simply try to find a business model for the music that we've contracted with musicians for and then we just split whatever money we manage to get from whatever ideas we manage to get - 50%/50% - with them.
MH: Excellent. Magnatune has been running for 4 years now?
JB: 4 and a half years now. So it was, April fools day 2003.
MH: So the creative works you're producing, that would be sound recordings?
JB: Right. When I got into this, I thought the business was all about sound recordings, and that turned out to be naive, and my enlightenment came when I went to a trade show called licensing international in Manhattan at which I thought would all be about licensing intellectual property. Which it was, but not in the way that I thought. What it was about was every single creator of anything that people know makes most of his money by licensing out that knowledge, that cultural artifact to other people. So for e.g. lord of the rings makes far more rings out of things from posters to clothing to jewellery than it does from showing the damn DVD to people. And we were right next to, for example, a porno video company, that was licensing out the porno stars to appear at whatever corporate functions that you needed, to help sell your booze for example. So it occurred to me that the music business people were very explicitly there. We aren't actually interested in music, as good music is actually quite easy to find. Do you have intellectual property that will move product. One of those products may be a CD, but we're interested in t-shirts, clothing, fashion lines. So they were quite interested in one of our renaissance bands, who has clothing, jewellery and furniture that they've designed. That's actually the music business - licensing the attention it got. In the US, two thirds of the revenue in the music business comes from licensing. It's one of the reasons that piracy isn't that big a threat to the music business - it's only one vertebrae of revenue. As long as they can still get attention and love for their product. That was way more than you wanted.
MH: No, that was good, as it brings us into the first top tip for open and free approaches, I suppose you can call it a top tip. It's not just about the core item you're producing which is a sound recording, it's about all the stuff that comes along with it, a short hand for that would be producing merchandise, t-shirts, but you can think creatively...
JB: I think it's, unless you actually get IP, you think in terms of copyright as a simple thing such as ownership of a song, or ownership of whatever that thing is, a photograph, showing up at an evening thing, but copyright over the years has meant the bundle of rights which the courts have created over the years. And there's a vast number of them . So it's things like, for example, in America, if you buy a piece of furniture, it doesn't give you the right to use that piece of furniture in a film, as you don't own the abstract instantiation of the art design. In france, you can, if you own the furniture you can use it in a film. So different countries think of these things differently. What it means though, is as new uses for goods come about, and the courts come up with a new right. And suddenly everyone who had copyright has a new right.
So, for example, a new right that appeared recently is the right to have your music listened to on the internet, and then that was broken up into 3 different ways. To download, to stream, and to have some effect over the stream - choose the album or is it chosen for you, those are different rights. It's all incredibly confusing, but what it means for openness is that you look at this huge bundle of rights that is copyright, and say, look, if I retain all rights to everything, then I'm not necessarily going to further my own goals, whatever they might be, so I'm going to open up and let some of my rights be available for free under certain conditions because I find it furthers my goals overall.
That's all openness actually means, openness doesn't mean giving away the farm, simply relinquishing copyright, it means making some rights available. So business models can arise that say, if I give these rights away that I wouldn't make money on anyway, maybe that'll help these other things where I do make money.
So, case in point, a friend of mine who is a book author is trying to convince his publisher to give away the audio book as the audio book never makes any money - it costs more to produce than it makes, and there isn't any promotional value in it. Since they're not a replaceable good for the print version, right, Very few people listen to the audio book then don't buy the print book - it's not a full swap. Then he thinks, maybe we should give it away and that will help promote it, especially maybe it'll even create demand in countries where there is no contract - right now he has an English language contact, and maybe he'd like a French language translation contract. So does a French audio language book for free and may be that builds demand etc.
That's all we're talking about, and the gulf between an 'all rights reserved copyright' zealot, and an 'open rights' zealot, and an 'information wants to be zealot' is quite different. The gulf between the All rights reserved person and the openrights person is not very wide, as both of them are saying, we a) recognise the rights of the creator to determine what happens to this good, and b) we want to retain a certain amount of the rights, usually most of the rights, to the good. And the 'info wants to be free' person is way in another sector of saying we don't want copyright, we don't want ownership, creative goods should not be controlled by their creators.
So the argument between the OS zealot and the ARR zealot, is simply, what is the best strategy for maximizing return on investment, which is to say, furtherance of the goals of the creator.
MH: I think that distinction is really important, and one which is definitely muddied if people don't tend to see the difference between the open source zealot and the info anarchist zealot who is quite happy to scrap copyright. Let's move on as that's a rabbit hole. <laughter> A rabbit hole I'm happy in, but let's stick to the programme. Is this, is magnatune, a niche or a mainstream product?
JB: It's what i guess I'd call, <pause>, right beyond the top end of the long tail. the type of product I'm creating is sound recordings, which lots of people like, in genres that are no the mainstream, but just beyond it. So I'm not doing hip hop or adult contemporaty, but I'm doing things like techno, heavy metal, classical music, world music. So these are mainstream products, so they appear to be purchased by around 60% of the music buying public buys these secondary genres, but they simply do not make much of the top 100 hits, however the long tail theory is that 60% of the revenue is in the rest of the stuff. So they are mainstream worksin aggregate, but not individually.
MH: When I look at your website, I thought that the predominate genres were ambient and new age, that's incorrect?
JB: It depends on whether you're looking at it in terms of sales, or what's popular. The things that tend to be more popular are the things that are hard to find in shops. And definitely things like new age, rolling (???) classical, which are the top 3 selling genres, do quite well. but that would be in terms of consumer sales, which makes up about a third of our revenue. About two thirds of our revenue comes from licensing; classical for example, just doesn't exist in licensing for us - licensing of classical music. Instead, they're generally licensing things like world fusion, a lot of rock and punk and metal.
MH: It's very interesting and we'll come to some more of that later, about how the pie splits up. So how is this product usually sold? I suppose this question is going to how do you differentiate yourself from traditional record labels?
JB: So, in one sense, we're extremely traditional, which is, all record labels, the entire record business has been about giving away the music for free in some limited context in order to create demand and sell the full product. In the past, this was called radio, and giving music away for free so people could listen to it for free on the radio. And in the US for example, since this was seen as promotion, radio stations did not pay any fees for playing the music. So that was that arrangement. Since radio has become very centralised and extremely expensive and non-economical for new acts to get broken through radio, new means have to be sought out, and the magnatune mean is simple for people to hear the music on the internet. The difference is that the rights holders, the major labels, don't like this approach, they feel it piracy, and so they limit how much consumers can hear without paying. Whereas the magnatune approach is that if we don't have hte major record label budget, we should let people listen as much as they would like, and we should be grateful that they're here at all. And let them listen and convert them into buyers. So what we do at magnatune is let people come to the website and listen, on average they listen for 2 hours and 40 minutes, every day, and see if anything grabs them and they want to buy it. They might buy it as a download, 15% buy it as a CD. And some small number, 3 - 5 a day, buy it as a license for their project.
MH: Wow. That's a lot of people per day.
JB: 45,000 people a day right now.
MH: That's a lot of people. And the average for those as you just said, is 2 hours 40 listening hours a day, That's a lot of hours, a lot of attention. Who then, who are these people, who are these 45,000 people who are listening?
JB: I break up the audience in a bunch of different ways. Some measurements: our audience is approx 50% American, approx 35% European, and the remaining percentage is the rest of the world, largely Asia. And, the musician corpus is about the same, but a bit more tilted towards European, 50% American, 45% European, and 5% the rest of th world. In Europe, assuming for a second we count UK as Europe, UK is responsible for about 15% of our total sales, so it's a very ??? market, it's our largest non-american market, followed by places like Netherlands, Switzerland. generally the northern countries we do better in, in terms of gross sales.
In terms of licensing, which is the other half, so we've got 2 businesses, and the idea behind that is, as a small business, you need to somehow get press visibility in order to get people to come to your site, and the press doesn't like writing about business to business offerings - they're boring, especially if they're small. Whereas a consumer offering, especially one that's a little bit plucky, is a good story, and that's how we've driven consumers to the site, and some percentage of them are business people looking for business purchases.
JB: I'll give you some more slices, only about 10% of the people who come to the site click on the genre classical, so classical appears not to be much of a draw of why people come to the site. However classical is currently 42% of our consumer sales. So, what that tells me, and I follow through, that that 10% isn't actually buying at all, it's actually quite distributed, is that, the public at large is interested in more diversity than they're able to get into in stores. And the same applies to the world of new age. People coming to the site are largely clicking on rock and electronica - those are the two things that are about 70%.
MH: Can you clarify for me, sorry, by clicking on classical, they come to the home page and click straight classical?
JB: On the home page it says "what genre are you interested in" and we give you 8 choices. That's in my estimation, how you decide what they find most compelling. I came here, what do you want to listen to? I want to listen to electronica, which means they're an electronica mostly fan. It just turns out that they end up buying this guitar album or Vivaldi much often than they buy anything else. And, my theory behind that is, simply that, while they might be a fan of electronica, they probably have ample ways of getting electronica through their shops, through other online outfits, through friends who tell them what's good, but they have no idea what may be good in the classical space, so they listen and they end up buying something.
MH: That's interesting isn't it.
JB: And that's actually the only way that we can compete against something like itunes, because itunes has everything; everything on magnatune is also on itunes, so why would you buy anything from magnatune? Originally, maybe it was because the musician got half, but musicians do extremely well on iTunes, especially if they're signed directly, the sound quality or DRM were issues, well itunes has changed that. They don't have DRM and they have better sound quality.
Certainly the ability to listen beforehand is significant, and a limited selection actually might be useful. So you go to itunes and wonder if "anything might be good in classical, as I don't know the genre", itunes wont help you, they wont really recommend things in their genres and the short 30 seconds wont really be that interesting.
The other assumption is that most music purchased is background music, and that's not how the music business tends to think about music. By background music, I mean music that you play while you do something else.
MH: This is one of your key ideas isn't it?
JB: right. So it can still be death metal, but it's just that you end up working to death metal. that's fine. If that's the case, then how will you learn of music that you want to buy? It'll be by playing music in the background while you work. Curiously, no one else does this. The closest you can get to this is things like last.fm or listen.com and that sort of thing. However, they're not directed listening, and they're very poor at converting into buyers. last.fm is, I know from talking to them, not very successful at converting people into itunes purchasers.
MH: We're going to get into that later on with the try before you buy aspects.
JB: So it seems to me that you have to be quite a lot more generous. So, target audience, it's frankly people who would like to discover music. That's who the consumer audience is. Thebusiness audience is people who need music for a project of some sort, and don't know where else to turn.
MH: Thank you for that succinct response.
JB: That's probably what you should put in. Am I talking too much? Should I get more succinct and can babble at the end?
MH: I'm enjoying the babbling to be honest. As it comes. I want to make one interjection, I really like your music as background idea. Certainly when I listen to music, it settles the brain down and lets me get on with other things.
JB: And affects your mood. I think of it as incense
MH: Big time, I like that a lot. So what are you giving away for free John?
JB: We're giving two things away for free, and to most consumers who are not aware of the nuances of open culture, we're simply giving away streams. So you go to the website, say you want to play this album, and it plays you in a little flash player embedded in the website, or if you don't want to use the flash player, click on a playlist and it'll play it in your mp3 player as a stream, mp3 streams. That's what most people see.
If you come from a open culture background, you're also aware of CC licensing, or maybe podcast licensing, so it turns out that you can download mp3s of everything at magnatune. if you click on the license button, and indicate that you are a student, or a podcaster, or you're other-non-commercial or a CC user, we just simply tell you the restrictions on use be non-commercial, you have to give us attribution, and use the same license, and you are free to download the songs. What you download is a 128k mp3 of each song. Appended to a song, but not mixed in, is a women's voice telling you the song name, album name and that it's from magnatune. You are equally free, because CC allows you to reuse the works, to chop off that voice. So you can download an album and lop off the voice. What I'm hoping is that the poorer sound quality, coupled with the voice at the end, will make you want to purchase.
But I can tell you, when we used to have downloads front and centre on the website, very few people purchased. At that point, we also didn't have the voice advert on the end. That didn't seem to work. We added the voice advert, because we found, probably about 2 years ago, that there were a number of new websites that were mp3 search engines, and you would go to one of these engines, type in what you wanted, and they would give you direct links to listen to mp3s that were hosted on other people's sites. The end result was that if you went to one of these search engines you could type in, classical, and hit play, and at no time be aware that you were listening to magnatune's music, simply because you were still at this other website, and they'd assembled a playlist, so it was costing us bandwidth and lost opportunity.
Rather than doing the reactive thing, which was blocking that search engine from coming in here, we thought how can we make that search engine and it's public to our advantage - so lets' put the advert and actual attribution on the mp3 itself. This turned out to be a really good idea, as we also encountered sites which took the creative commons license quite loosely, and would download the entire website, including all the mp3s, strip out all attribution to magnatune, and host it themselves. We could decide to to legally go after them, because they usually had google adwords, which I consider, in this case, especially if you take attribution off, to be misusing the CC license,
MH: Because' that's a commercial...
JB: Because they're hosting our music and getting ad revenue out of it. But especially lack of attribution. There were some who had attribution. But, anyhow. That's what we ended up giving out for free - 128k mp3s. We also, for many years, offered the wave files, which is to say the perfect quality ones, without any audio tag on the end, to anyone who would email us and say I would like to reuse this for my project - we would simply give them a download password. That just got to be too expensive - of the order of 200 a day, and we had to pay someone to read the damn email, and determine if this was real, and send it back, and often people would be quite demanding and say that I need these 40 albums, and well, it wasn't cost effective.
We changed our policy to say, look, the 128k mp3s are free, and if you'd like to use the waves for your CC project, you are free to do so, simply pay us $5 for the album and you will get a CC licensed wave file. That, I thought it would create a backlash, but it was quite the opposite. It turned out the podcasters were really happy to pay $5 to get amply rights clarified. So there's not a problem.
MH: So that's turned into another stream?
JB: That's a small stream, that's right. A revenue stream is what we're talking about. Yes.
MH: I think we've covered a few of the questions that were ahead of us there.
JB: The other thing that we give away for free is the catalogue is often given away wholesale, as a complete work, to academics. We'll ship hard drives to people for example. Queen Mary College, London, they've got a hard drive of all our music, as they've got a really big music research centre, and they use our music for all sorts of analysis. ?They're not the only ones, if you go to Google Scholar, and search for music research, and you'll find almost all the papers use magnatune music, as it's the de facto pool that all academics have free access to. Which is an interesting side effect. Last week, there was a big todo about Sun and their new music recommendation and visualisation engine.
I should also mention that all our metadata is also covered by CC license, which is a really big deal for music researchers. Because they're able to run algorithms to see, is this classical music or death metal, and compare that against their metadata, which a human being has created. Or use their metadata to tell their stenographers.
In the case of Sun, they actually use the photographs of the artists to create a 3D visualisation of the related music, and can do so legally under a CC license. ?MH: That does bring us smartly onto, does it require any specialist technical knowledge to achieve this? It doesn't sound like something that any young musical entrepreneur could try out. Someone who wanted to record, try their friends out, or, a wider pool of artists.
JB: There are lots of ways to try it out. The hard part that magnatune does is get audience - the other stuff is not that hard to do. Getting people to show up to your site to give you a chance is the actually really difficult part. That's the expensive part.
MH: There's hard and there's hard. i think the average man on the street might find some of this pretty challenging, from a technical aspect.
JB: Well, you make an mp3 and you make a website, and you can do so with any of the consumer tool for creating websites. and you go to the CC website to get a CC license, and that walks you through a fairly simple wizard which gives you the HTML you can paste onto your website. So it's not without any technical challenge, but pretty light.
But the issue is now you've got a website out on the internet that has some CC music, but who cares? Who is going to find it? Who is going to know if it's any good? So for most people, it's better to go to an aggregator, which is someone like magnatune, but we're picky about what we take, so we may not take you. Instead, you can go to someone like Jamendo who will take anyone who owns the rights to their music, and they're able to create demand and audience, and they take care of the streaming as well as the CC licensing. And they're certainly not the only ones - you can also upload to the internet archive who will do much the same thing, and provide those radio stations for you.
So those sites do all the technical thing as well as the hosting, but the issues is, who will get people to go to your site? And that's the old fashioned marketing. And what open culture and open approaches do is they don't create barriers, but the old barriers that are there - meaning too many people, too much stuff - are still there.
MH: Indeed. Have you incurred any additional costs in order to give this creative work away? e.g. Bandwidth, hosting. From what we've discussed, it must cost you an awful lot of money to serve music to 45,000 people a day.
JB: Right. And, there are arguments, that if I were truly embracing the open model, that I could just get rid of costs. What I could do instead is offer all our music through bittorrent, which would then, more or less, get rid off any bandwidth costs. The hosting costs would just be to have a big enough hard drive to have one copy of it, and that's that. Although I could even put them on demoid and get it peered that way - that'd be one way to do it.
The costs for radio stations are pretty high, it costs $2.50, so a pound and a half, per month per listener to host a radio station. If you think someone lists for 2 and a half hours, half the work day, you can fit 2 people a day on a channel, so it's costing you roughly 75p a month per person. So you have to figure out then, every 10 people, one of them has to buy. So what that's shown to me, a radio station is not economical, radio streaming.
The reason is, radio streaming, meaning people who go to a site like shoutcast, or itunes, and listen to your radio station, aren't really aware of you, and they're not really aware that you're trying to sell them something. Even if you throw adverts at them, it's just not your audience. What I find, is when people go into the magnatune website, and having to look at the page and see the flash player are much more likely to convert. So the same costs apply, but however because it plays one album and then stops, they have to go back to the website pick another album, choose it, and be aware of what they're actually playing. And that helps convert them into buyers at a much better rate, even if it doesn't convert them into buyers, it turns them into magnatune zealots very effectively.
So, they're very likely to blog, podcast and tell their friends about us. So the cost, which is the $2.50 a month, is amortized not just through the ratio of listeners to purchasers, but to listeners to marketers, street-teens or propagandists to your cause.
MH: I don't understand the term you used "amortized"
JB: Amortized, amortized is to distribute the cost of something over a longer term and many different fields. What I mean by that, is a simple view of mp3 streaming might be how many people listen to a stream buy it? But by amortizing the cost I mean that isn't the only value of my listeners. They also return me some money or return me value, by blogging about me, or using the music in their projects. Which is kind of like the major labels using street teams...
MH: Paid for street teams
JB: Largely not
MH: Paid for with tickets to gigs or cds, or a joint or two or whatever it is
JB: Yes, or special access.
MH: Yes.
JB: But paid for, we're talking about pence on the hour in terms of labour costs. So very cheaply paid. And that's yielded this hiring of attractive people who go to very important pubs and bars and talk about your act in order to get people excited. If that very beautiful person likes that band, they must be somebody, which is the use of that.
MH: Okay. So let's get into the income questions. Are you giving away these works to promote a paid for service, product or performance?
JB: So the business model behind magnatune is twofold, right. It's people will listen for free and at some point will purchase the music as consumers - cd or download - or for their business. What we've found is, that's turning out not to be a good business. It's an OK business, but the numbers are getting worse year to year. One of the reasons is there are more competitors who frankly are letting people listen to music for free. So you can listen to last.fm or other sites for free, so that novelty is, erm, it's not so much the novelty but the need people have to buy in order to hear music is going away. There are many free offerings for that. So that's one aspect of it
The other is, because people are more and more connected to the internet, the idea of a download is simply less compelling. Downloads are what you need in order to have a) a permanent record of something or b) something when you're disconnected from the internet. Disconnected from the internet is now pretty much your ipod and maybe your car., and that's about it. Even the ipod isn't that disconnected as podcasts end up being a timeshifted internet access. So, you're not that disconnected either. Cars are still an issue, but not for much longer either.
So there's that, and there's the fact that music licensing is still thoroughly dominated by the top market which is Hollywood and the TV studios and those people are very much an inward group, adn are not looking for cost savings on the internet. Where we make our money in licensing is generally small scale things, like, music on hold, or music for your wedding view, or lots and lots of music for independent films which will be shown at festivals and never again. So, I think we've done about 1500 films who have licensed our music, and of those, only 2 have made it into widespread release, which is when we actually make some money. Until then, we only make $42 for a license at the festival stage, as they have no money either, so we can't ask them for much money.
Those are the models now, and we're looking at possibly other models. What has worked very well for us for example is special licensing, so it's not the old business model which was listen to the music, or try before you buy, the new model for licensing which is working better is "we'll license you rights that no one else will". And that looks to be good for a few more years, as long as the major rights holders are inflexible. For example, we did a big license with Renault where they wanted a preloaded mp3 hard disc player for the car, and no record label would sell them 30 gigs of music to put into a car for reasonable costs - reasonable costs being under a few hundred dollars per car. So that's one example.
Another example is a TV ad which wants to offer a free music download to get people to go to the website, well, labels don't want to do that. Most recently, Bang and Olfsen is going to be preloading magnatune's music on a number of their devices, so when you get a MP3 home appliance from them, it'll have music and artwork and that sort of thing.
MH: Shall we get into exactly why other more traditional companies are uncomfortable with those sorts of licenses?
JB: The main issue is that they want to hold the price up. And the sad thing about the ipod is, you buy even the smallest ipod, an 8Gb ipod, and you're lookign at 800 albums, and that would be ?8000 pounds roughly, in itunes to fill your little 8Gb ipod, never mind an 80Gb ipod. And, those prices aren't reasonable, so peopl ewho have or are entering hte music purchasing community, say leaving college and getting a job, and they'd like to own a few hundred albums, they're face with spending a few thousand pounds to do so, and that's a very expensive idea.
MH: that's a deposit on a house, or a car
JB: And if they own a hard disc ipod, then they're looking at a car price in order to fill their ipod. And that seems silly, especially when the alternative is fill it from a friends ipod, or just get it from bittorrent. Especially when you see these torrents, there are things like "80s collection", and it's 4Gb of music, and it's every good 80s album that this person has chosen to put in that collection. So that's really easy to fill your ipod.
So, the issues is faced with a consumer devaluing the price of individual albums, because the price doesn't make sense with how they're using music, the record labels are look, at how to meet this market, we'd have to be selling albums at 10p each. We can't afford to do that. So you've got this huge discontinuity of an album at a reasonable price, say ?5, and the real street value of it, which is probably 10 pence. And there's no place to meet there. The closest place to meet, frankly, is a subscription service like Napster, where you pay a price that the consumer is willing to pay, but it comes with all sorts of restrictions on devices and how you're allowed to use the music.
MH: As well as distributing all your music online, in many creative ways which you've just told us about, the tracks
are also available on good old fashioned cd?
JB: About 15% of the people buy the CD, 30% around Xmas time, and I think there's a number of reasons for that. Some people like the backup, some people are buying as a gift, some people don't like downloads. That hasn't diminished over 4 years - it holds steady at about 15%.
MH: What about other physical formats? Have you dabbled with vinyl for example?
JB: Never dabbled with vinyl. We dabbled for a while, we had a partnership for a while with Samsung where were sending USB thumb drives that were preloaded with music, they even had a web interface, but the reviews of that, quite honestly said, "what's the point? I can just buy a cheaper USB thumb drive and download the music of the internet". We were selling it cheaper, and $20 got you 20 albums I think it was, and these stuff there, but the reality is, in an always connected world, you simply go to the internet when you want music. So where we and almost everyone else has to go is, to provide music to an always connected internet world, and the idea of permanent hard purchases is just going away.
MH: You just pioneered, I don't know if you pioneered it, but you were were the first person I saw, doing hte varied pricing approach, letting the consumer decide how much? did you pionneer it?
JB: I don't know anyone else who did it.
MH: Because it's now mainstream, it's now Radiohead. Tell us a little about it...
JB: Was it Amy Mann? No, it was a woman folk artist who did it for a long time. She's the other. it wasn't Amy Mann, it was some else ... is easy to find. She's been doing it for 2 years, but she did. Actually, Radiohead, you had the option of paying nothing
MH: A small transactional fee
JB: But you can download the music without paying at all.
MH: Is that right
JB: I don't know. This other woman, that was the case.
MH: Radiohead is a case study that I'm hoping to do, if we can get anywhere near them if we have time.
JB: One thing I did do was set a minimum floor - which was $5, and depending on the currency fluctuation, ?2.50 to ?3. The ceiling was up to $18, with the idea being that you set the ceiling higher than people would normally go, as people would never go to the ceiling.
MH: You didn't do it unlimited?
JB: That's right. As it turns out, actually, some percentage, about 3%, paid $18. Fair more actually paid $12 - $15. About 30% paid over $12.
MH: So 30% pay over the odds?
JB: Way over the odds, pay $12. It's actually 20% pay over $12, 20% pay $5, and the remaining 60$ are pretty much at the $8 - $9 range. ost people choose the default price, or bump it to $9.
MH: You've poured over this data?
JB: right, there's an economist at Kings College London, who has done 2 papers on this, on voluntary pricing schemes, with some insights.
MH: I would love to append those to the cast study.
JB: They're good. One of them is unpublished I think, one published one.
MH: Anything in particular to say about why voluntary pricing schemes...
JB: Why Voluntary Pricing? So, the basic insight which lead to this, is, people don't have to pay anything for music. They can a) pirate - and certainly, for a large amount of the online public, that's available and easy; or they can b) not purchase - by listening to radio either online or offline, or any of the radio like alternatives, everything from yahoo to last.fm. You simply don't need to pay for music in order to hear music. So, if someone hits the buy button, they have identified themselves as someone who wants to purchase something, and are completely separate from the other class. And, I don't know what value I should ascribe to that. I actually don't know if it's 8 or 10 - I'm not trying to hold the line against a physical CD distribution system. In fact, every sale, whether at $5 or $18, is 100% profit - there is no actual incremental cost associated with a sale. I don't have to pay PRS fees on it, it's just a bank fee then all free money. So I don't really case if you're a $5 or an $18 purchaser, as much as the fact that you're a purchaser. And I don't know what the natural price should be. Maybe people want to pay $5, and would purchase far more.
In fact, one of the things the economist found is that the more albums people buy, the less they pay. So it seems that it is the case that people are willing to pay, and are willing to buy more if they pay less. It might be as simple as they're used to getting a discount for quantity, and want to fill their ipod and see diminishing value in each album. I don't know what the reason is. But, you also see, I want to break this idea of a single access of value ascribed to music, meaning "how many units has it sold?" This idea of the charts. The charts are purely how many copies has it sold. To me, there are two axis that are important, how many has it sold, and how passionate is that fan base. Because, if you sell a lot of music but the fans don't give a damn about you and you go on tour and no one comes, that's one kind of fan base. If you have an incredibly passionate fan base and you can go on tour all the time and people will pay ?50 to see you, that's a completely different audience. If Im' going after a second-tier audience, that's what I'm a actually interested in. I'm interested in people who will pay a lot, or just pay period, to get music that they like. Hence, go after death metal as there are no death metal radio stations in central london. And this is a way to support what they're into, correct me if I'm wrong.
So that was the other idea behind voluntary pricing, to have a way to gauge the passion of the purchases, and that actually means a lot to the musician. To get a $12 purchase is an incredible honour. Most people would rather get one $12 purchase, than 3 $8 purchases, as it's emotionally impactful to the musician - it's a gift for why they'd do that. It's also very impactful for me at magnatune because half of that's going to me, so they're endorsing the magnatune process.
For years, we had a donation page on magnatune, and over the years, made $3000 on that. That was just people giving us money for nothing given back to them.
MH: Can I pull you back to something. The idea of incremental cost on a sale. That doesn't apply to traditional record companies? They put money into recording...
JB: Sure it does. It applies to a digital sale where they have no transaction costs. So, that would be, universal studios' own download site, that would apply. When someone pays less for a CD than they could have, then you've got all the costs of shipping, breakage, returns, pressing, that are very real. So, a better way to put is, if someone shoplifts a download, then you don't lose anything, because it hasn't cost you anything to supply that shoplifter, other than an infinitesimily small amount of bandwidth.
MH: I think if you were to discuss that with an accountant in a record company, they might see it another way
JB: Well, the thing is they're going through, there's a concept of, see if I can remember, it's not lost revenue but it's, we'll call it lost revenue which is that some number of people who shoplift, if shoplifting were impossible with purchase, this is the argument that China represents a multi-billion dollar piracy loss and it's true to some degree, just not true one to one. If they could not pirate in China, there's an argument that some people, there'd be more Windows licences, sell. The opposite argument is extremely possible though, which is that companies pirate at a much lower rate than end users in china, let's suppose, it's probably true and so the massive consumer piracy makes Windows the de facto standard which makes companies purchase it legitimately. so that can certainly be the case in the music business when Britney Spears is widely pirated which creates a massive audience of teenagers who buy lots of other products, that then makes lots of money because someone who wants to throw a Britney Spears song on their adverts can't get away with not licensing it and that's how they make their money, so I wouldn't say that piracy or shoplifting doesn't, err, is always a negative, it can actually, on an accounting basis, be seen as driving sales and Bill Gates in fact said this very thing.
MH: thankyou for clearing that one up. I want to breeze through these quickly because I think we have covered them before. How much of your income is direct, how much of your income is indirect. If I've been listening, direct would be the money that comes in from licensing and from sales
JB: Ok, almost all of our money now comes from sales from our website and virtually none of it comes from third party sales such as iTunes or licensing to resellers, virtually none meaning less than 5% in aggregate so everything is direct sales and the question is which is B2B and which is B2C and it's varied over the years from 2/3rds licensing to 50% licensing and right now it;s about 50% licensing again so they are about equal
MH: How have you managed to convince other parties involved to go 'open'? I guess there aren't any other parties - it's all a one man show ...
JB: Yeh, I did everything and the tasks were slowly replaced by other people
MH: i supposed it's interesting ????? to get into the relationship with artists, whether you have to convince artists, do you find that a hard job or do they, artists come to you already zealots for the open approach
JB: well, because we don't solicit, we don't actually go out and try and recruit people we find that that doesn't work because so few people know about open approaches that our conversion rate is about 1 in 10 so we just don't do that. Instead we let people send us CDs and they do about 3-400 a month is what we get through submissions and in order to see our postal address you have to get all the other philosophy stuff so they know what they are getting into and what would happen if they were approved. So these days that isn't a big problem, sometimes we have to explain it
[4.00]
but musicians, well there are two issues, one is they are so desperate to break into licensing where they know is the money and also the key to a large audience and so they are willing to perhaps lose in their minds with the consumer audience to gain some licensing. Secondly, we're mostly dealing with non-major genres and so the number of classical acts getting signed to lucrative major label contracts where they never have to work again is very few and so they are willing to do a revenue share no upfront royalty deal with us because they don't have other, more compelling offers. The other offers they get are when they have to pay to make a recording and they lose the rights to a label. we sound good compared to that.
MH: I suppose another interesting question on that note would be have you had to try hard to convince other business folk I suppose and what arguments have you used?
[5.00]
JB: Other business folk to do what?
MH: to come into line with magnatune with the open philosophy?????? to try hard to convince them because ????? if they weren't on the same page
JB: right first of all they would see we're not evil ???? and run which I'm sure many of them do and secondly if a business is licencing our music, it's not in an open way, it's the traditional legal contract. and dealing with us as the copyright representative
MH: so lets get into motivation. so why have you decided to give you music?? away in this way
JB: the original idea behind magnatunes was seeing that the secondary genres were dying very quickly and so an example is that in 1980 house music represented 20% of the music business
[6.00]
JB: in the year 2000 it was 2% and in 2006 it was three quarters of 1% and so that, the consumer sales of that music have completely evaporated. what that means is that there isn't a business model for musicians to make possible CDs so that means we are going to have to listen to the same old stuff for ever
MH: by the same old stuff you're talking about
JB: the recordings of classical music, their won't be new classical recordings. simply, it does not make economic sense for new classical recordings. that's a major both revenue and advertising stream just gone so how will the next stars get born and be able to do tours where they make their money, well, we'll have to come up with a lot of money to make CDs at a loss in order to do that but also CDs are permanent artifacts, they're culture and not just classical but how about all these other genres that trendiness vanishes
[7.00]
JB: for example the early ambient style of warp records, when warp changed styles the bands that did not want to change were simply dropped.and so that style of music was considered no more commerical, commercially viable by Warp Records and vanished even though the artists were still doing it and the fans were still out there. So the idea behind Magnatune was to try and find a business model whereby these genres could be nurtured, the art could be improved and preserved and the fans for that both could be found and possibly even created.
MH: do you make money
JB: if we did not make money then that wouldn't make this process even work and so the, the, by business model I mean explicitly that, in other words was there a way for profit to be made in the creation of sound recordings because the current one does not work at all
MH but these particular kinds of sound recordings
[8.00]
JB: I'm sorry, what was the question originally and have I answered it?
MH: Yes, you have, why did you decide to give your works ??? away and in the end the answer is that
JB: I don't think I did answer it
MH:???
JB: I don't think I did
MH: I got some ??? so go give us a better answer
JB: so the reason I gave it away was because there was no business model that I saw ?? for the recording of, for the creation of sound recordings and since the insight I had was that radio was essentially the old form of giving music away, that Open culture, creative commons licencing, radio streaming, was simply the new way of giving things away and so it fit completely in line with how music has always been marketed
MH: do you have your answer??????
JB: that's a much better answer, cut the rest
MH: yep, cut. I suppose in there we've also covered the benefits that you've seen arise from giving the works away
[9.00]
MH: and that there would be continued production of sound recording for these niche markets
JB: there's two benefits, one is the classic benefit of marketing so in one sense giving the music away lets people listen to it and become interested and that's no different from radio. the second benefit which is specific to open culture is the reuse propogation aspect of it which is, creates a secondary market and that's remixes, showing up in films, all those things. that the old methods didn't do. so those are the benefits of giving it away.
MH: and the flip side to that, errm, negatives
JB: the main, the main risk is, is erm, well the main risks would be devaluing it, so what people can get for free they don't want to pay for, that's a very real risk for, but they can do that anyway through piracy so I don't see that
[10.00]
JB: as a huge risk
MH: that's not your risk
JB:that's an existing reality which is music costs nothing
MH: which some people still finding it hard to come to terms with
JB: they don't want to fold their multi-million dollar businesses yet????? so there's certainly that risk. There's the complexity, both real complexity and administrative complexity in what cases is the Creative Commons licence correctly being served witht he followup we have to audit, there are certainly people who don't understand the licence and mis-use it, of course that same risk occurs with plain old copyright, so those are the typical risks. I guess you could be labelled lunatic fringe, maybe that's bad, actually thats probably the biggest risk
MH: that's probably quite a good thing in your business
JB: Hah!
Mh being labelled lunatic fringe, the music industry thrives on outsiders and on people who don't quite fit the mould
JB: well, probably the biggest risk is that we are doing something that is quite different and that means that a lot of musicians
[11.00]
JB: are turned off and scared by it, alot of the more conservative music buyers might be turned off by it
MH: do you think that's actually the case, it seems to me that if you actually have three or four hundred demos coming in a month than you've got
JB: well, I try, well it is the case in the sense that when we used to ???? foudn that??? not work but I think that's not so much the open approach as much we are askign htemto sign a contract and not goving them an advance and that, that doesnt fit their head, they have to do wrok, take legal risk and we don't give them money for that and ???does nt sound good. And so I haven;t found it to be a risk but then again we don't have much to lose, we're not Britney, we're trying to build a market out of nothing, classical music is already destroyed, we're not doing this in 1980 when the industry was healthy
[12.00]
MH: OK, err, have you had any negative reactions, err, I suppose you have had going out to recruit people, were there any other examples of negative reactions?
JB: well, the slogan we're not evil would definitely, a number of major labels, executives, that we met, felt that we were specifically pointing at them. Which we were. and the logo, in fact we were pointing with a very specific finger at them errm, so they sometimes took that personally which is unfortunate except is was not that unfortunate when they actually were evil bastards and we felt good about that and in fact many people have come to us at trade shows to say 'I worked for major label y and we're one of the evil ones and they actually say it quite knowing that that's actually
[13.00]
JB: the fact and they think it's funny and I think they hope to get some ????? ???? change, possibly live with, err, their damned state and, err, there is that. Is....... there any other, it can be sometimes hard to take it seriously because most.....look at this way...I don't know of any other Creative Commons adhering, sincerely Creative Commons-adhering record label as friendly as mine. I know of other record labels that use Creative Commons but they use it as a marketing device in a way that does not affect their mainline business, like Fading Ways Music (????) is a traditional CD label, they put a Creative Commons licence on the CDs however you can't go to any website and download their music so in what sense are they Creative Commons
[14.00]
JB: if you can't get the music to share. Well, they are in the sense that if you buy the CD you are then allowed to share it with your friends in fact you are allowed to put it on a website and disseminate it...they don't promote re-use so they are doing it in a way that adds Renegade to one of the assets of their brand but does not do a whole lot so that means that when we go out there and say we are a record label that uses Creative Commons for marketing purposes that raises an eyebrow and people tend to lump us together with the crowd that doesn't ever want to make money. It was hard when we were reading in Sound on Sound which is a musicians business magazine essentially, that reviewed Magnatunes, Fading Ways and..err.. a Drum and Base label in South England
[15.00]
MH: I should know, I used to be a drum and bass head, errr
JB: it was all Creative Commons, yep, except that he does it with a Creative Commons Attribution licence and the quote they had in the magazine was "we only print 500 vinyl copies of it and we are never going to print it again and so if Columbia wants to, err, take one of our recordings and and make millions of dollars then that is fine by us". So that's a position quite different than probably mainstream musicians
MH: Indeed,. Well, we've certainly covered these next couple so we can skip through. Expectations, I suppose when you started it out, three and a half years ago,, what were, sorry, 4 and a half years ago, where were you hoping you wanted to go to, what were your big dreams.
JB: when i was starting it out I actually had no, errr, idea that it would be big in fact when it was selling
[16.00]
JB: two copies a day I was really excited and I just wanted to give a try I didnt' think that I would succeed, I did not think anyone would notice and I did not care, that was not the reason. I just felt really shitty, that is friends of mine who were musicians who were really good and one of them had won a Grammy couldn't afford to make another record. So here's someone with a grammy and 5 Grammy nominations who can't make a record, It's completely absurd and I just said I'm going to try and do my bit.
PART 5?
MH: What do you think would happen if you gave more rights away - were more liberal with your licensing?
JB: Right, So Cory Doctorow has some anecdotal evidence that the more rights he gives away, the more he sells of his books. The problem is, CC is a very problematic license, unlike the GPL, it has a very straight forward and simple philosophy. We're doing several things at once with the CC license that we use. We're really trying to give something away for free that people who make money wouldn't want to use. So they they'll have to give us some money to get an alternate license. And so, for example, if we got rid of the Non-commercial but kept Share Alike, but that would probably have no negative impact on our business as business would, by and large, not be willing to release their own products under a SA license. So, that would probably be ok. the opposite is true too, if we kept the NC but got rid of the SA, that wouldn't really hurt us either as businesses are forbidden to use it because of the NC clause.
If we got rid of both NC and SA, and just had attribution, then the question, if we still didn't change anything else at magnatune, it probably still wouldn't change anything because of the way that the music is obtained under that license, is through the word license on the website. License. It would be either click to listen and you hear a stream, and we push you towards buying, or you hit license and we would say, if you're going to give us attribution, then you can use this music for free. That might kill our commercial licensing business, but probably not, as no signed piece of paper comes with that license, and because people are so lawsuit scared, in the use of music and other IP, they require a signed license with lawyers before they'll risk using your work. And in fact, I have had discussions with Cory Doctorow about how he will charge if you want him to sign the open license which he's already granted the work under. Some people want that signature. So those would all be possible. It depends on how we position it.
I remember this very snooty interview I heard by Brian Eno where he said that he sees the world divided into two types, into creative people and consumers; Consumers don't want to create. And to some extent, that's what Magnatune is dividing the world into. When you go to Magnatune, and click listen/play, and we're identifying you as a consumer who simply only wants to consume and doesn't want any active role in this work. As opposed to a creative person who hits the world license as you know what IP is, and then we immediately tell you that if you're one of them, that we're happy to give you the music for free. That's how I'm trying to see the world; on the consumer side, people who purely want to consume the music, we would like you to subsidise the world of artists who like to create these products that you enjoy.
MH: That's a nice view, I like that.
JB: That view is under attack now, now the internet and software tools like GarageBand have made creativity a lot easier. So, I'm not clear, for example, if I was to sell you a 16 track version of a classical album which you could drop albums, change tempo, change the mix. Would that be a creative act? In some hands it would, and more people could be creative/creators.
MH: I see a sign that says rabbit hole. Are there any future tech developments that you could foresee damaging your model?
JB: It's already happened. We're probably only 2 years away from always on internet wherever you are are, at audio streaming quality speeds. The old model of stream for free and pay for download just goes away, when you can just stream. That's close to happening, but not quite there. We wrote an interface for the ipod to the magnatune catalogue. it works quite well over ethernet, it doesn't work over EDGE yet. We had to lower the audio quality to telephone quality in order to stream your music to your iphone. But since there's no incremental fee to listening to the iPhone over the internet, when they speed that up, everyone will just listen to streams and we'll have to have different business model.
MH: Are there any future social developments that you could foresee damaging your model?
JB: Well, we already deal with this to some extend, because classical music orchestras are government by a union, and the union in America requires DRM on any recordings the orchestra produces. That's a social policy which then makes orchestras unable to try things like magnatune, where we're not willing to sell with DRM. There certainly have been talks in various Governments of requiring DRM, that would have an impact on what we do. There are also loopholes that we use in IP law that allow us to do this business model without having to pay collecting agencies. If those loopholes were closed, then we'd have to pay for each of those 120 listens which yields one purchase, that would make that margin quite a lot harder to make.
MH: let's not talk too much about that.
JB: There are governmental policies that could certainly happen, and in the opposite, simply that the government becomes so repressive that perfect piracy becomes widespread, and we can't imagine a world where we would actually pay for music. Instead, the only people who pay for music are companies who need the branding association.
MH: Magnatune specific question section is here. Have we fully covered the difference between the old try-before-you-buy approach, and where you're going to take it?
JB: Probably not, of course, it's completely unknown whether/where we're going to take it in the next 6 months is going to work. we might take it someplace else 6 months later. But all I can tell you is that the ratio when we launched was 1 in 42 listeners purchased, and now it's about 1 in 120. Things like radio through other outlets like iTunes have proven to not create sales at all. And to be quite expensive bandwidth wise, and bandwidth prices haven't gone down. So, the business model I'm seeing has to deal with streaming being the dominant form of music listening, and that means either I charge for streaming, or I give music away completely for free to consumers and make money through licensing. I don't see any other models right now. And so, for the time being, the plan is to charge for streaming, instead of on a per song basis it would be a subscription basis, and, at the same time, lowering the cost for downloads to iPod-sane levels. Being something like 100 dollars to get the whole magnatune catalogue on your ipod. Since that is something the consumer might consider is a reasonable price.
MH: What about things like shorthand here, an ISP tax for music which is travelling across the network with some sort of collecting society set up there?
JB: My concern is that we have collecting societies now, and they're crooked. They overwhelming alter the way they pay to favour the biggest stars, and they do that in a number of ways. One example I'll just give, is if Britney is played on a popular radio station then your song is played on a popular radio station in the States, BMI will pay Britney 8 times what you made, even though you were both in the same audience in the same radio station at the same time. That's simply how they do it. So my concern is that any collective tax, any collective royalty gathering would be susceptible to those same pressures, and what it means is that the people who can buy the politicians in the collecting societies will get all of the money, and a vast amount of what's called black box revenue, which is the money that is willfully not paid out because of bad records to smaller musicians, but is instead paid out to those who we do have good records for, that system will just be perpetuated.
What I do really favour is a non-government mandated one, a system where independent licensing occurs, where an ISP like Be says, we'd like to engage in licensing deals with record labels, and we'd like to do it on fair terms based on we're going to pay 10% of our monthly take, evenly based on what music was pirated on our network. Boom. We'll pay the same out regardless of your chart level. That also then lets people/record labels opt in or out of these things. We could also opt into aggregators; I use an aggregator called Ioda [sp?], who could then themselves negotiate with the ISPs, and an ISP could get a vast amount of music quickly, and if I don't like the deal, I could ask Ioda to opt-out for me. That's essentially the deal I have now for getting onto things like Amazon. So there are interesting ideas, but I think there needs to be the ability to opt out, and there needs to be competition so the fairer system has a chance perhaps of winning.
MH: Thank you. How come magnatune doesn't have any adverts on there?
JB: Magnatune doesn't have any adverts for a number of reasons, one is simply we're really conscious of our brand value, which is to say we are a place you got to listen to music, and the interface is extremely minimal - it's 3 clicks and you're playing an album. The sell, there's no hard sell. You're listening and if you want to buy there's a button there. We don't have any obnoxious adverts on the radio or anything like that, simply because we're conscious that the consumer has a massive number of choices and it's really easy to drive them away. Also, the magnatune brand value as a renegade has been quite valuable. As an example, when we did the USB keys with Samsung, Samsung paid us to put magnatune branding on their USB keys. My face got stuck on the back of the packaging and we got paid for that, because of this attribute. And the idea of a record label having recognisable brand values is quite revolutionary in the music business. Labels generally don't have any brand attributes, only artists.
MH: Hmmm. I can think of examples
JB: There are a few, but not he majors. It would be things like BlueNote records, Warp Records. Essentially single-genre and second-tier generally. You wouldn't say that's a really good generic rock label - but that's a very good drum and bass label absolutely.
MH: So, a traditional record function is promoting its artists? Blood/ink
spilt over the kind of commitment/spend when a traditional label signs up an
artist. But that's not what magnatune do, you don't promote...
JB: We don't promote in that way. We still do a vast number of other promotion things, and in fact, there's a page that i really recommend you read called "What Magnatune does for musicians" <http://magnatune.com/info/musicians> which goes into detail on the specific things we will do if you sign for us.
And one of the things we do try to do is, try to do many of the same promotion tactics that were done in the old days, but in a way which makes sense in the internet reality. For example, instead of sending physical CDs to radio stations who then throw them away because you haven't brought them, what we do is have a list of music reviewers and music bloggers who can get on the thing and when we have a new release, we send an email to them saying here's a new release and here is your free download password. So that is completely the same thing as sending the CD, but only it doesn't cost as much, and the podcaster actually can get this stuff. And because it doesn't cost that much, we're able to serve a much large audience. So those are the sort of things that we look at doing.
We've looked at, for example, we haven't done this year, but doing a house concert network. It turns out that it's extremely hard to get into clubs and they wont pay you, they want minimum spends or you get a cut of the bar, and it's very hard to do tours. Instead, can we organise something where you would go from house to house, playing to 30-40 people, and everyone is paying 10 pounds to get in. That would be far more money than you make from a club, and far more reliable, and the fans could self-organise it.
So that's the kind of direction we're going in, in the future.
MH (interrupting): That's a great great direction. Sorry. Would you not have license fees to pay for doing public performances?
JB: No, because the musicians are playing their own music. If the musician is playing his own music, then he owns the complete copyright to it, and no cover songs. No.
MH: Is there a PRS ...
JB: PRS well, there's supposed to be an exemption. The way it's supposed to work is you get the license and you're refunded the amount of money. I don't know how well that works. In some countries, well....
MH: I think that's a groovy groovy idea.
JB: Maybe, they have to pay a PRS fee to play at someone's house, but I'm not sure if it would be considered a public performance, because it's you and your friends, and the public is not invited.
MH: I'm sure the attack dogs at PRS would have fun with that
JB: It's a good question
MH: Finally, before I thank you profusely. Is there not a contradiction between the license that you use and the explicit limiting of 3 copies? Or am I reading it wrong?
JB: There is no contradiction because at no point do we tell you to not give more than 3 copies.
MH: Right, OK. You'd have been a good lawyer
JB: We say "please give this copy to 3 friends".
MH: Right, OK. <laughs>. Fine.
JB: but we do ask you to "please don't put it on bittorrent", but we don't tell you that you're not legally allowed to.
We tell you because we don't like the businesses that thrive in the Peer-to-peer ecology. We don't think they're ethical. It's not one of limiting your rights, it's simply that one. And to this day, you'll find very few magnatune albums, the only ones you'll really find are the compilations that we're giving promotionally away anyway
MH: That's plenty, thank you so much.
