Magnatune, founded by John Buckman in 2003, is a music label with an associated website. Today was the first time I heard about Magnatune (thanks to Ajay Juneja), but I agree entirely with their business philosophy. I really think this is the music business model of the future.
There are two key business model issues to note that make Magnatune different.
The first is that Magnatude allows buyers to download music completely free of DRM and in the format (WAV, MP3, OGG, FLAC and AAC) and quality of their choice (very similar to grey market allofmp3.com, but in this case with the artist’s express permission). As I’ve written before, I think this is the only way a label or artist can charge for music – no DRM and offering a choice of formats and quality.
Albums sell for $5 and up (the buyer decides if he or she wants to pay more). Sales include downloadable cd art and inserts. CDs may also be purchased for delivery.
The second business model difference is how Magnatune treats its artists. They share a flat 50% of gross proceeds (before any costs) from music sales with artists. They also share 50% of merchandise sales profits, although they have not started selling merchandise yet.
Magnatune doesn’t take on any artist that applies – only about 2.5% of those that apply are accepted according to an article by Stereophile.
Magnatune also gives the buyer the legal right to share the music with three other people, even allowing those people to download the music directly from Magnatune (a great viral marketing feature, by the way). Of course, without DRM, the music can be shared anyway, but giving people the right to do this is a nice touch.
And if you lose your music, you can re-download it from Magnatune at no additional cost (Dave Winer will love this).
Yes, there are no high profile artists currently signed. But if Magnatune can get even a single big artist to move to them, they’ll be on the map permanently, and the artist will make a lot more money.