I wrote this article about burnlounge.com a while back for a website that never really took off. I’ve been meaning to repost it in my blog for a while but I kept putting it off. I just read that the FTC is taking a closer look at BurnLounge, so I finally posted it. Now I can say “I told you so.”
Being an artist today is not like it used to be. The combination of broadband internet and cheaper technology has made easy for just about anyone to express his creativity and share it with the world. This ease of access hasn’t reached its limit yet – new businesses and websites targeted toward do-it-yourself artists are constantly popping up. Unfortunately though, opportunities like this are rarely missed by those looking to exploit the uninformed and eager.
I recently learned about BurnLounge.com, an online music store with a twist. I’m always interested in new things in music and new things on the internet, so this sounded like it was right my alley. I went to the website, searching for information on this service, hoping to figure out if I’d be able to afford to take advantage of whatever it was offering, but the more information I found, the more confused I became.
The idea behind BurnLounge is that you pay BurnLounge a yearly fee, and they allow you to set up an online music store where you can sell digital downloads of music supplied by them, but chosen by you. As you make sales, you receive BurnRewards which you can trade in for free music downloads for yourself. If you get your friends to open BurnLounge stores, you get rewards from their sales too. If you are willing to pay a monthly fee in addition to the yearly fee, you can earn cash instead of BurnRewards for your sales.
My first reaction was to wonder why someone would buy music from me instead of just going directly to BurnLounge or another person with a BurnLounge account. It’s not like it’s a physical store where it would make sense to own a franchise. The McDonald’s at Philadelphia’s 30th Street station isn’t really competing with the McDonald’s down the street from me because they are in different locations. Online music stores do not have that distinction – they are all located in the exact same place – your desk…or wherever you keep your computer.
My second reaction was to think that I must be misunderstanding. If they are asking for yearly and monthly fees, there must be something that their users gain. I figured that there had to be some benefit that I had missed, so I went back over the site, scouring every page to find it. I didn’t find it.
Then, somebody mentioned something to me that made it all make sense – pyramid schemes. Wow. I thought those didn’t make it past the 1980’s, at least not in the mainstream. I even checked out the website for Quixtar, one of the most notorious pyramid schemes in the U.S. Some of their marketing material has wording extremely similar to what is on the BurnLounge site.
For the benefit of those that don’t know, here’s how a pyramid scheme works. The parent company has a product. You pay the parent company a fee to sell the product. You get a percentage from the sales of the profit. If you convince other people to sell the product, you get a percentage from their sales to. If those people get people to sell, they get a percentage from those people’s sales and you get a percentage from both of them. It’s all very logical and it sounds like you could make a great profit for a relatively small amount of work.
While it may sound nice in principle, problems arise when pyramid schemes are put into practice. In a 1979 FTC ruling, Amway, a company founded by the same folks behind Quixtar, was determined to be a legitimate and legal business. However, it came to light that less than 50% of the sellers ever made any profit and that most of the profit that Amway made came from the sellers own use of the products. Pyramid schemes are marketed as being great money-making opportunities for sellers, but in reality they are for the parent companies to make money off of the sellers. I’m sure most of the people reading this either have or know someone that has stacks of boxes in the spare room, attic, or garage, left over from a “business opportunity” that didn’t quite work out.
At this point, I think it’s pretty clear that I’m not buying into the whole BurnLounge thing, but I thought maybe I’m being unfair. I went back to the site and found a contact e-mail address. I sent an e-mail with a few questions to customer support @ burn lounge . com. Honestly, I had doubts that I would get an answer, but in less than one hour, Eric Kerslake of BurnLounge Retailer Support sent me a response. Here are my questions and the answers I received along with what I think of each answer.
Q. Can you clarify the amount/value of BurnRewards or cash per song sold that BurnLounge store owners will receive?
A. BurnLounge retailers will receive .05 cents per track sold, and .50 cents or 20% of the gross profit margin (whichever is greater) for any album costing 9.90 or more.
My Thoughts: Let’s do a little math. Let’s say you want to break even over the course of a year. It costs $29.95 to set up a store and an additional $6.95 per month to get cash for your sales instead of BurnRewards. To break even, you would need to make $113.35 for the year. At $0.05 per song and $0.50 per album, that means you would need to sell 2,267 songs or 227 full albums in the year.
Q. When compared to similar but free services like those offered by PassAlong.com or iTunes’ referral program, what are the benefits of using BurnLounge?
A. The benefits of using BurnLounge is [sic] the ability to have your own customizable download store to attract customers with tastes similar to yours. BurnLounge also is a great opportunity for any person that has their own music they would like to sell on the BurnLounge site. BurnLounge allows artists to submit their music for free to the BurnLounge catalog. So an artist can have their own BurnLounge and receive commissions for the tracks that they sell and royalties for their own music sold by them or other BurnLounge retailers.
My Thoughts: I guess having your own customizable store could be considered a benefit…if you could make money from it. The problem is at this point, the idea of making a profit from a BurnLounge store is not very feasible. For $55, CDBaby.com will sell artists CD’s and send files for digital downloads to a large number of online music stores. That’s $55 period, not per year and instead of a measly 5% of sales (or nothing if you don’t pay at least $113.35 per year) the artist gets the full sales of CDs minus $4 and 91% of whatever the various online stores pay CDBaby for your sales. That 91% may not amount to the larger part of your sales in all cases, but it will usually be well above BurnLounge’s 5%.
Q. The concept behind BurnLounge sounds very similar to the business model behind notorious pyramid scheme company Quixtar. What is the difference?
A. I am not familiar with (Quixtar) and when looking over their site it looks to be a very different style of website. BurnLounge is not a pyramid scheme and is in compliance with all local and federal laws.
My Thoughts: This is very true, the websites are quite different, but my question was specifically about the business model. As for Kerslake’s straightforward but unsupported statement that BurnLounge is not a pyramid scheme, check out the wikipedia entry for Pyramid Scheme and decide for yourself.
Q. Should potential store owners join BurnLounge expecting to make a profit?
A. All BurnLounge store owners can make a profit, however the less effort that a retailer puts in to BurnLounge the lesser the return. You do not automatically make money as a BurnLounge retailer, you will need to put some effort in to getting customers and traffic to your BurnLounge site through advertising or word of mouth.
My Thoughts: Advertising costs money. You already have to sell over two thousand songs to make money from your initial investment, how much would that number jump if you have to include marketing costs as well? You could always go by word of mouth. You only need to find enough people to spend over $2,000 at your website.
Q. What do you think will make music buyers choose BurnLounge stores over iTunes and other popular digital music stores?
A. BurnLounge offers a unique opportunity to support artists and local retailers by offering the same products that other download sites offer for the same or similar price. BurnLounge is also the only download service that allows members to have their own customizable download site for as little as 29.95 per year.
My Thoughts: Let’s take a look at some excerpts of this question and answer. “BurnLounge offers a unique opportunity…by offering the same products that other download sites offer for the same or similar price.” That doesn’t sound very unique. In my brief search of the web, I did not find another site that “allows members to have their own customizable download site for as little as 29.95 per year,” but I am not sure how this offering will “make music buyers choose BurnLounge stores over iTunes and other popular digital music stores.”
Things are not looking good for BurnLounge sellers. Drawing visitors to a website is far from easy, especially when that website does not offer any significant advantages over many popular, corporately backed websites. For a seller, drawing visitors would just be the first step. Generating sales is even more difficult. Success at drawing visitors and generating sales seems very unlikely considering the current context. iTunes is the largest seller of digital music downloads. Most people looking to buy music online will go there simply because of its popularity or because songs bought there will play on their iPods (BurnLounge songs will not). More discerning shoppers will search for cheaper stores (e.g. PayPlay.fm tracks cost $0.77) or stores that offer downloads without restrictive DRM (digital rights management).
My verdict on BurnLounge – stay very far away. The “service” they offer is nothing but bait to convince people who are looking for alternate sources of income to hand over their hard earned money. There is nothing to gain by signing on with this company and plenty of money to lose. I generally feel that anytime someone asks you to pay them so you can make money, they are not to be trusted, and BurnLounge is no exception here.