Magnatune, a record label founded in 2003, is a pioneer of open music, the most successful attempt to embed Creative Commons (CC) licences in a sustainable commercial venture, and an early adopter of variable pricing. Initially conceived as part online radio station, part retailer and part licensing-suite, the business model continues to evolve in response to consumer and technology trends.

Since the beginning, Magnatune has offered a free music stream as a version of ‘try before you buy’. In practice, the conversion rate from listener to buyer has dropped from 1:20 to 1:42. John attributes this to the growth in competing offerings, and downloads becoming less compelling because listeners are rarely offline. This drop has been managed by dramatically reducing costs and the service will remain profitable until the ratio drops below 1:200.

Magnatune uses a variable pricing model as standard, inviting customers to pay whatever they consider fair within the range $5-$18 / £2.50-£9. Fifty per cent of customers spend between $8-$9 / £4-£8, well above the minimum.

Fan purchases make up about half a musician’s income, with the remainder coming from commercial licensing fees. John sees bulk discounts and wholesale as an important feature of the current digital ecology, and that the ability to compete in this area depends on the cost-savings offered by the internet and the use of standard licences, (which remove the need for expensive lawyers).

Magnatune are also willing to “license rights that no one else will”. For example, Renault wanted a pre-loaded, DRM-free 30 gigabyte hard drive — amounting to hundreds of albums — for their cars at a price of less than $200 / £100 per unit, meaning a cost price well below $2 / £1 per album. John was happy to make a deal traditional labels wouldn’t. A lot of the businesses that want to license their music contact them. By having the music accessible online you a sort of "automatic business development"

John recognises that obscurity is a musician’s biggest hurdle, and his innovative approach to overcoming it is to provide ‘open music’, which is “shareable, available in ‘source code’ form, allows derivative works and is free of cost for non-commercial use.”

Making a catalogue available for free risks devaluing the works because some of the potential market will opt not to pay and simply use the free versions. However, for John, this risk will not in practice reduce the market for his recordings because those who prefer not to pay will find the recordings they want available via P2P networks and torrents regardless of free offerings.

The content from this page has been taken from a case study at open rights groups creative business wiki

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