BurnLounge, Inc. was founded in 2004, with offices in New York City. Its primary business was the BurnLounge online music store, and it was associated with Orbital Publishing, which produced printed matter for the company. Former CEO Alex Arnold (formerly with Excel Communications and founder and former chairman of NuEWorld.com), was partners with Ryan Dadd and Stephen Murray.
Described by Gartner G2 as a multi-level marketing company, BurnLounge prefers the term "concentric retail" to describe its business model. The company provided record labels and artists with a fan-driven promotional channel.
The music service allowed customers to preview and purchase music, and chat through a proprietary client. Customers wishing to sell music through their own custom pages were required to purchase a subscription. Subscription costs varied, and consisted of either an annual fee or an annual fee with an additional monthly charge. These fees only allowed one to redeem sales points for BurnLounge products; participants paid additional fees if they wished to exchange earned sales points for money. A Fortune article places the commission at five cents per 99-cent download.
The company stated that nearly 30,000 people had opened BurnLounge storefronts, including several major label musicians. The service provided content supplied by Muze, with early versions of its software provided by Beatport and SocialIM. Version 0.9 of the software was introduced in October 2005, and version 1.0 was unveiled in Las Vegas on June 9 and 10, 2006. BurnLounge offered only music downloads, but other products such as audiobooks, video, ring tones, and physical merchandise were said to be planned. Burnlounge 2.0 (or BL2) launched quietly on Friday, April 27, 2007.
BurnLounge was not without controversy. People who understood how BurnLounge worked generally fell into one of two categories: Fans and supporters of the concept; or critics of the multi-level marketing aspect of the business.
The critics tended to focus on BurnLounge's marketing materials stressing the importance of building the network of friends and users over the actual selling of the product, a common theme in pyramid schemes, while the supporters said that BurnLounge store owners were not paid for recruiting, but instead made money by selling a suite of products including music, VIP ticketing packages (through a partnership with Live Nation), a magazine subscription and more.
FTC files pyramid scheme lawsuit
On June 10, 2007, it was reported that the Federal Trade Commission filed a lawsuit on June 5, 2007 against specific BurnLounge participants and their involvement with BurnLounge's alleged pyramid scheme. One person named in the lawsuit is former University of South Carolina football star Rob DeBoer, who says that he recruited about 45 other people to open their own BurnLounge sites. Those recruited would then pay a commission on their sales to DeBoer. DeBoer stated that he made almost US$300,000 from BurnLounge. The lawsuit is the result of a year-long investigation into BurnLounge by the state of South Carolina. Others named in the lawsuit include former BurnLounge CEO Alex Arnold, and two Texas men who promoted BurnLounge similarly to DeBoer. The FTC's claim is that BurnLounge is a pyramid scheme because the company pays more money for recruiting new store owners than for selling music. The case went before a Federal Judge in December of 2008, and while many of the accusations against the company were dropped by the FTC, on February 29, 2012 an order was issued barring the defendants from operating a pyramid scheme and ordering them to pay some $17 million in damages.
Out of Business
As of October 2009, continuing through August 2013, the company's website hosts a teaser promoting BurnLounge 3.0 with the statement, "Get ready".
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