Changes Is Good

I love MP3tunes and when they announced that they were expanding their service to include 1GB of free music storage I thought it was a brilliant move. The MP3tune service is pretty simple, give them $40 bucks a year and you can upload all the music you have into a virtual “locker”. They store it for you, give you the software to synch it with a bunch of computers and they do deals to make it available via an ever expanding list of interenet connected devices. Its musical goodness.

I thought it would be fun to play MBA for-a-day so I whipped out excel and started to crunch the numbers. Two questions were driving me, how how much money could they be making at MP3tunes and should I be worried about them going out of business anytime soon? Since I was only playing at MBA, my spreadsheet isnt at all complex and doesnt include a thousand interlinked sheets and fifty named variables. What it does however, is suggest that the musical goodness that is MP3tunes is a nice little business for Micheal Robertson. Its no Google to be sure, but with low fixed cost and modest variable costs, every new user just adds to the bottom line.

I know what your thinking, I’m obsessed with Michael Robertson and I need to stop jocking him. But I cant help it, there just arent that many super rich white guys willing to be controversial at every turn, thumb their nose at the establishment, provide entertainment to the public and blog fodder for us C-listers. Only Mark Cuban and Jason Calacanis are as much fun and Michael has launched more internet business then either one of them.

The Model
Anyway back to the money mill that is MP3tunes. To start off I made some root assumptions, namely that the largest expense would be streaming costs, storage costs would be negligible and development was a fixed cost that was shared across the company. Based on pricing from GravityLab Multimedia, a dedicated audio hosting service, bandwidth cost per GB for a 300GB of monthly bandwidth cost $299 or roughly $1/Gb transferred. This seemed high so I looked around and I found another, audio host, Triple8, which offered a similar service at 20 cents per GB streamed. So it cost MP3tunes somewhere between 20 cents and a buck to stream a GB of content, to make things simple I’ll use 60 cents.

MP3tunes streams your songs at 128k and they list 27,720 lockers available on the site. Of these, only 1,500 or so have more then 500 files and its this group that I assume are the paying customers on the site, largely due to locker size. There are roughly 2,200 lockers with more then 100 files, including the previous 1,500, and it this group that I assume are the most likely to stream content from the site. One last little thing, based on how I use the site it seemed reasonable to me that most folks would stream for about 3 hours or so while listening at work.

Put all this together in a spreadsheet, give it a good shake and out pops the answer. $14.49! Thats how much MP3tunes makes on each paying user, not accounting for things like staff, equipment and rent. Multiply this by whatever percentage of the 27,000 or so accounts listed on Lockerenvy that you think might be paying for the service and you get a sense for MP3tunes current market. Another number that came out of the hopper, is a negative $1,132. Thats the amount they would lose on an aggregate basis if all the numbers outlined above hold true.

So your probably asking yourself how can they make money on individual accounts and loose money in aggregate? Its simple really, if streaming is their biggest cost and they allow all users (premium as well as free) to stream songs then every free account cost them about $25 dollars. In other words their costs goes up every time someone opens a free account and uses it to listen a CD or two over the net.

If its true that every time users stream content, rather then just store, it costs MP3tunes money, why would they expand offerings to include a free locker with streaming? I have no idea. Perhaps the good folks at MP3tunes have adopted the street pharmacist philosophy and are hoping to get people hooked on the free stuff and then convert them into paying customers later on. I’d argue that a better approach would be to offer massive 10-15 GB’s lockers for free but with no streaming, users can sync and move data but MP3tunes wouldnt bare the cost of streaming infrastructure. Store all you want and move it between computers but multi-device streaming playback and unlimited space your gonna have to upgrade your account

You can double check my back of the envelope analysis with Editgrid’s online spreadsheets, make changes as you see fit, resave the results and share.