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Music Site Gives Fans A Cut From Music Sales

September 3, 2008

A new Web site is trying to make it profitable for music lovers to stay ahead of the curve – by paying them when other people purchase MP3s they’ve bought.

Popcuts, which publicly launched its Web site in early August, charges users 99 cents per song. Thereafter, whenever someone else buys the same song, those who have already bought it get paid in credit that can be redeemed for more Popcuts music. The earlier you buy a song, the larger your cut of future sales.

Credit is currently the payment option, but the Berkeley, Calif.-based site’s founders hope to eventually pay users in cash, too.

The idea came from a desire to better align the interests of artists who want to sell their music and fans who want to get it for free, said Hannes Hesse, 28, one of the company’s three co-founders.

“We thought that by providing this extra incentive to buy a song legally, namely, owning a stake in that song, would make it more attractive to buy,” Hesse said.

Gary Yao, a 25 year-old Popcuts user, said that while he’d prefer cash to the current site credit that users earn, he likes being rewarded for buying songs. So far, he’s earned $5.25 by buying tracks.

Yao said that he’s discovered a few new bands by using the site over the past month. “It gives me an incentive to go out there and see what’s new and available.”

Currently, the site only has around 700 songs from about 200 artists – but Popcuts is adding musicians through a deal it recently made with music distributor DashGo Inc. and is looking to connect with more distributors and with record labels.

Hesse said anyone making music can sell their tunes through the site, while maintaining full rights to their work. The agreement between artists and Popcuts is not exclusive, so music makers can sell songs through services like Apple Inc.’s online iTunes Store as well.

Popcuts takes 10 to 20 percent of song sales. Artists can determine what cut they get, and the rest goes to fans.

With fans who buy songs earlier getting a larger cut of subsequent sales, Hesse thinks a lot of people will search for new tunes and buy those that sound promising.

However, Popcuts’ has some pretty stiff competition. Besides its small music catalog, it’s navigating a market populated by several large, established players like Apple and Amazon.com Inc. that already have the allegiance of many digital music buyers.

“Popcuts’ model of sharing with users can be very effective. Besides making money, users might feel as if their purchases are helping to invest in the bands on the site,” said Mike McGuire, an analyst for Gartner Inc.

McGuire said this could really make consumers feel like they’ve done their part in a new band’s success.

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