Over the past decade countless Internet music ventures have gone down the drain. Sometimes it seems as if today only a giant (and gigantically rich) company like Apple with its iTunes store and software tie-in can succeed in music-download sales.

Magnatune is helping to prove the contrary. On the heels of its quietly revolutionary announcement that customers may share their uncompressed-audio music purchases with up to three friends, the online record label and store has seen a 40% increase in sales. I spoke by email with Magnatune founder John Buckman about his new offer to "fill your iPod for $200" and, generally, about what he's doing right and what the music industry on the whole is doing wrong.

A basic element of Magnatune's business plan is that although it sells directly to the customer, it also deals directly with the artists, who are signed to non-exclusive distribution agreements and receive 50% of the proceeds from sales of their music. The lack of an intrusive middleman is what makes this equal partnership economically and conceptually practical. With traditional record labels, creativity in marketing is discouraged, when it's needed now more than ever; "Every business idea [the artists] have needs to be approved by the record companies [which] control the music," Buckman says.

Native Internet companies aren't immune from seemingly nonsensical thinking, either. When Real.com, through its Rhapsody service, cut its prices in half and sold ten times more music downloads, it ended up "paying the record companies more per song than they were charging, despite the fact that the tenfold increase in sales meant five times more revenue for the record companies. Basically," says Buckman, "I pity anyone who has to convince record company executives of new business models: that's a short path to insanity."

Magnatune customers set their own prices, paying what they feel an album is worth (plus a fixed additional fee if they want a physical CD, including full artwork, mailed to them). On average, the artists receive $4-$5 per album sale, far more than artists on major labels get. And while that may be somewhat less than the typical take from a CD sale at the revered online indie record store CD Baby, and less (percentage-wise) than the latter pays out for download sales via its digital distribution service, Buckman explains that CD Baby is a very different beast: "CD Baby doesn't promote your CD, it's a shopping cart [and fulfillment house] for you to send orders to, from your [the artists's] web site. Cargo Cult, for example, one of Magnatune's best-selling artists, sees fewer than 10 sales a quarter from CD Baby yet sells hundreds of copies in that same time frame on Magnatune. That's no failing of CD Baby, they simply have a different mission: CD Baby sells your CD to people who already want to buy it. Magnatune finds people and gets them to want to buy your CD. Totally different things, equally valid."