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Tuesday, May 17, 2005
New Business Model Evolves for Music Artists
Editor's note: we've been following the dramatic changes in certain industries and what they mean for entrepreneurs, including music-entrepreneurs. An increasing trend is for music artists to choose to stay independent and market their own works, instead of signing with major record companies. So it is with great interest that we present this guest column by Jason Feinberg on the new business model for music artists.

By Jason Feinberg

A trend is often most fascinating when it is counterintuitive to an industry's traditional ways of thinking.

In the music industry, up and coming artists are finding great success by doing the exact opposite of traditional practices. Instead of selling their music, they are giving it away -- completely free -- on the Internet.

The music industry has been looking for ways to deal with music being distributed via the Internet for almost a decade. During the majority of this time, most of the bigger record labels held a strong stance against placing music on the Internet for any purpose -- be it sales, marketing, or promotions.

All efforts put forth by these companies were focused on shutting down websites and software companies that were making music available. Most of their efforts ultimately proved to be in vain, as they could simply not keep up with the rapid pace of Internet growth and expansion.

Smaller record labels had varied strategies in managing their music online. Some attempted to embrace emerging Internet technology by making their music available, while others shied away from using the Internet for anything more than simple web pages.

As more and more companies began assessing the opportunities the Internet provided, many players in the industry began to realize that combating the issue of music being distributed online was a futile fight. Music fans were storing, sharing, and buying music online at an exponentially growing rate. There was no way to avoid it -- the industry simply had to devise a way to control it.

At this point, it was quite clear that consumers wanted their music on their computer and portable devices; it was also becoming evident they were quickly adopting new technology and distribution methods. From this arose a tremendous opportunity for musicians that were not yet under contract with any of these record companies.

Instead of forcing consumers to pay for the rights to own and listen to an artist's music (the traditional practice), independent musicians began giving their music away for free with the hopes of creating awareness of their art and increasing exposure for themselves.

Websites such as MySpace and MP3.com began offering a centralized location for artists to distribute their music for free. These sites have proven wildly successful. MySpace has over 12 million users and is growing rapidly. Sites such as these have provided independent artists an avenue to reach potential fans that was previously only available to those signed to a record company that had a marketing and promotions budget.

The ultimate benefit to these self-financed artists is that CD sales created by this business practice have a significantly higher profit margin than a structured record label would make. Labels spend tremendous amounts of money marketing, promoting, and distributing their product, all of which eats away at their profits.

Typically an artist signed to a record label might net one dollar (US) per CD sold -- and that is only after the label has recouped its expenses. An independent artist using free promotion techniques can see as much as twelve dollars (US) profit per CD.

It is this simple math that has inspired many musicians to completely ignore the traditional route of signing with a record company in favor of doing everything on their own.

As record labels rush to develop new ways to both fight and embrace the Internet as a music distribution tool, independent artists continue to capitalize on the new trend of free self-promotion. As more and more Internet sites devote themselves to creating exposure for these artists, an entirely new business model for the entire industry is being developed.

* * * * *

Jason Feinberg is President and CEO of On Target Media Group, a music industry marketing firm specializing in Internet and New Media promotion. He is also the author of the Music Business Blog, an online journal focusing on current trends and topics in the music industry.
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