There's a quiet controversy brewing in the digital music industry over the business strategy of recently launched online music store BurnLounge with critics alleging that the store is the digital music world's equivalent of a pyramid selling scheme. The site advertises itself as 'the world's first community based digital download service' (guess they never heard of Napster) and allows users to get personally involved on a number of levels as music retailers.
At the most basic level users are encouraged to register and build their own personal Web shop, containing their own personal music picks and recommendations. The user then can recommend their personalized music store to friends and family and get reward points every time one of those people buys from their store. So far it's pretty innocuous - sounds a bit like iTunes meets Amway.
But at the next level things start to get more complicated - the BurnLounge Affiliate and Music Mogul Programs also allow users to sign up and build their own stores, but users at this level can also sign up affiliate retailers - and every time they do that they will get a share of any revenue generated from sales on their affiliate's stores and a share of the fees that their affiliates pay.
If a retailer does manage to sign up a lot of affiliates, it does seem that they have a good potential to make cash from the scheme, but probably not from actual sales of music themselves, rather from the costly sign-up fees involved. While the basic package starts at a modest $29.95 per year, if you take a VIP package with the works and join the Music Mogul Program that's going to set you back a whopping $605.35 per annum.
Given that the BurnLounge stores price music at a level pretty comparable to iTunes or other major download stores and offer no substantial additional functionality it seems that there is little in the way of a value proposition for a consumer over other download services. While it's difficult to see how much revenue a retailer on the service will get, I get the feeling that most of the real revenue from this scheme is going to come from the schmucks that sign up to sell music, not from the music sales themselves.
1. I believe the one of the defined features of an illegal pyramid scheme is that the revenue generated from the sign up fees is far higher than the actual revenue generated from sales of the product - it's too early to tell this about BurnLounge, but it looks difficult.
It will be interesting to see how BurnLounge does since music itself is not a high enough margin business to support a traditional Multi-level Marketing structure - there simply isn't enough margin to go deeper than one layer and still have a way to make money.
On the other hand, I have to applaud them for trying something different in an attempt to grow the marketplace.
Posted at 3:04PM on Jun 16th 2006 by Sean Ryan