Piracy, Protectionism or Open Source – How “Open Music” May Offer A Better Way in the Music Industry

5 06 2007


This is another post in our ongoing look at innovators using open business models to leverage the Internet, new media, and consumer interest for more choice in meeting customer need. By studying innovations in open source strategies you may identify opportunities to create customer interactivity around products and services in your own market.

Earlier we looked at SellaBand from Germany that is revolutionizing music by engaging the consumer as investor in new music where everyone has a chance to make music and make money.

Today we look at Magnatune and its founder John Buckman who was a very early entrant into “open music” as a viable third strategy for creating a more healthy music business. If Buckman’s name is familiar it should be. He founded Lyris the list serv software company. He has another start up called BookMooch (a global community for exchanging used books) and serves on the Creative Commons board of directors.

Buckman believes the future of the music industry is in a state of crisis:

“The old music industry is in crisis. What worked for so long is failing rapidly, and there isn’t enough flexibility in what exists today to try to find things that might replace the old ways. There’s also the very real possibility that the music industry will simply be smaller, and that people will simply spend less on music than they did in the past.

Today we see three trends, all colliding:

1. Increasing piracy, now responsible for approximately for 30% of all Internet bandwidth usage.
2. A move toward near-perfect rights enforcement, through a combination of operating-system enforced DRM, lawsuits and raids, and government laws.
3. A massive increase in open music (and other open media) inspired by the success of open source software.”

Rather than protectionism or piracy both of which Buckman feels will kill the music business, the industry should embrace open source approaches that are presently being innovated “where distribution channels are freed up, people listen to a much greater variety of music, and individual musicians have a chance of getting their music heard and making a living at it.”

Open Music Is About Creating New Ways to Make Money and Customer Interaction

Buckman believes that if musicians and music industry players can open up their overly restrictive copyrights and permit non-commercial use, remixing, sharing and downloading then it will be these same techniques that build a 21st Century fanbase and develop different ways to make money.

Open source businesses commonly offer completely new ways for people and companies (supply and demand or content creators and consumers) to create value. Buckman sees such innovations already that follow the making/sharing model of Youtube. A music remixing website under Creative Commons license called CCMixter.org let’s fans listen to music and then rework the music to create new versions and ways for people to interact with music content. Says Buckman, “It’s not that different from the phenomena of mix tapes: people want to be in control, and they’ve got their own ideas of what they want to do with their music.”

To see what he means let’s look at Magnatune.

A Web-based Record Label That Gives Musicians A Greater Share of Their Own Work AND Visibility

Magnatune wants to change today’s world of the musician. The following experienced happened to Buckman’s musician wife.

“When my wife was signed to an Indie record label, we were really excited. In the end, she sold 1000 CDs, lost all rights to her music for 7 years (even though the CD had been out of print for many years), and earned a total of $137 in royalties paid (some of it paid to her as CD copies of her own CD which she then gave away for promotion). The record label that signed her wasn’t evil: they were one of the good guys, and gave her a 70/30 split of the profits (of which there were few). The label got screwed at every turn: distributors refused to carry their CDs unless they spent thousands on useless print ads, record stores demanded graft in order to stock the albums, and in general, all forces colluded to prevent this small, progressive label from succeeding.”

Meanwhile, the music consumer experiences the following:

  • Radio is boring: good music is rarely played on the air nor are the variety of genres accessible.
  • CDs cost too much, and artists only get 20 cents to a dollar for each CD sold. If they’re lucky.
  • Napster, Gnutella and Kazaa proved that people love music, and they want to share it. Lawsuits may shut Kazaa down (and Kazaa obviously promotes copyright violation), just as Napster was shut down. Clearly there’s a huge public demand for Open Music.
  • Using the Internet to listen to music is usually tedious: there are too many ads, too many clicks, and the sound quality is usually bad. It’s too much work, not enough reward. A well run Internet radio station (such as Shoutcast, or Spinner) solves that, but the entrenched record industry wants to kill that too, with onerous licensing terms and odd “rights limited” playback schemes.

Now back to the musician:

  • Online sales often cost the artist 50% of their already-pathetic royalty (due to a common record contract provision). International sales and mark-downs often net the artist no royalties.
  • Record labels lock their artists into legal agreements that hold them for a decade or more. If it’s not working out, labels don’t print the band’s recordings but nonetheless keep them locked into the contract, forcing them to produce new albums each year. Even hugely successful artists often end up owing their record label money.

Enter Magnatune

Target audience:

  • People who listen to music in the background while they do other work (i.e. office workers [or any traditional “radio” market]).
  • Fans of music that gets little radio airplay or major record distribution, but has a fairly large audience.

The Magnatune experience (it’s free) looks like this:

  • Radio station experiences of very high-quality artists, tailored to each listener’s specific tastes.
  • It’s easy to listen to the music and what they play is a diverse genre with extremely high quality.
  • A simple interface to save favorite artists and songs; come back to them, build a collection.
  • A wide variety of music that can be freely previewed and put on a ‘temp track” on a work-in-progress. If the music is then proven to work for your use, you can then pay to license it for advertising, films, business, etc.

Magnatune sells:

  • Downloadable albums at a low price: $5 to $18: buyer determines the exact price.
  • Sub-licensed music for commercial purposes (i.e.: trade shows, advertising and web sites), priced from $150 to $5000, depending on length and type of use. This is their fastest-growing and most profitable business area.
  • Merchandise: posters, clothing, mugs with artist’s likeness. They’re not currently offering this, but may in the future.

How the artist makes money:

  • 50% of the sale price of each album goes directly to the artist.
  • 50% of any commercial sub-licensing (ads, web sites, trade shows, films, etc) goes directly to the artist.
  • 50% of merchandise profits goes directly to the artist.
  • Wider distribution of the artist’s music means more gigs and more fans.

Magnatune’s mp3s are available under the “Attribution-NonCommercial-ShareAlike ” license from Creative Commons. Specifically, this means:

  • You can listen to Magnatune Internet radio stations, download their free music, and share with anyone you like.
  • Derivative works (for example: remixes, cover songs, sampling) are explicitly allowed. Some of their artists publish the “source code” to their music so you can rework and improve it. This includes scores, lyrics, MIDI files, samples and track-by-track audio files.
  • Non-commercial use of Magnatune music and its “source code” is free. However, if the consumer makes money (“commercial use”) with Magnatune music, the remixer must “share the wealth” and provide Magnatune and their artists a share.

More on Open Source vs Piracy vs Protectionism

John Buckman’s presentations on this topic are quite interesting. He presented recently in Antwerp at Meeting of the Minds 07 – The User is the Content. You can follow the podcast (here) and download his slides (here). Also you can find his presentation “Piracy vs Permission Society” (here) presented at Reboot 9.0 another TED-styled conference held annually in Europe. Reboot 9.0 has yet to post the video from that presentation but promises to do so shortly.

Open Source in Your World?

Are there innovators coming online with businesses or products based on open source strategy in your industry? Are you tracking them? What can you learn from their business models, means of producing and distributing content, and customer contact?

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