MP3 Unplugged: Rethinking The Digital Music FutureMP3 Unplugged: Rethinking The Digital Music Future

Kelli Richards, president and CEO of the All Access Group, an established veteran in the digital music/media arena, believes that any viable business model incorporates the full range of artist activities into the revenue stream. She is especially interested in what she calls "the concert of the future," in which savvy artists will use technology to extend their relationship with their fans in a live concert experience.

For example, prior to playing a concert in a particular location, a band could push messages to fans in an e-mail blast based on zip code; at the concert itself, fans could vote for the set list using their cell phones. Leaving the show, the band could send songs to fans' cell phones, send follow up e-mail messages thanking them for coming to the show, and offer them discounted merchandise that they could purchase from an online store.

"Concerts are the No. 1 category in on-demand television," pointed out Richards. "People are willing to pay top dollar for live performances, and technology is a great enabler of turning these events into opportunities to draw fans closer and generate even more revenue."

Musician Samantha Morton provides a case in point. Like most independent artists, she makes most of her money by touring. Although she does record and make the CDs available at her concerts, as well as digital downloads available through iTunes, she uses recorded music sales primarily as vehicles to promote her live appearances. Each CD she presses costs her $1.60; she routinely hands them out to fans and tells them to pay her whatever they think they are worth. Rather than the $1 she gets if one of her songs sells on iTunes, she gets an average of $10 per CD, which leaves her with a net profit of more than $8.

Still, she sees this less as a significant revenue stream and more as a way to increase her fan base. She encourages people to burn copies of her CDs and give them out to friends. She has even provided blank CDs to concert goers to facilitate this way of spreading the word about her music and advocates free file sharing of her music over the Internet for the same reason.

Is Online Popularity Translating To Revenue For Artists?

But is Internet popularity translating into actual revenue for artists? This is the million-dollar question. "It's very nascent, but I don't believe that sales generated on MySpace or YouTube or Facebook are adding up to very much," said Richards. Like others, she believes that online tracks will promote sales of what she calls "value added content": backstage or behind the scenes footage, outtakes, interviews, or opportunities to interact with the musicians more intimately.

Faber is also a big believer in this value-added concept that piggybacks onto digital downloads. Under this scenario, the digital downloads are both a discovery mechanism and advertisement for the album, just as radio used to be. "By getting tracks out there as broadly as possible, and making them as accessible as possible, you can drive demand for the album and all the value-added content that's on there," said Faber.

Faber, who was an expert witness for Napster, calls the summer of 2000, before Napster was shut down, "the golden age of music." "I absolutely believe that Napster would have been the greatest thing to happen to the music industry. People were far more engaged than they ever were before or have been since in discovering music and passing it along to others." Indeed, surveys showed that Napster was associated with greater album purchasing, he said.

"Who needs major labels, and Rolling Stone, and MTV? You've got friends, and ways of communicating and talking about bands," said Bracy. "Hundreds of bands, not a single superstar among them, all have significant followings and fan bases thanks to technology."

The online music site Pitchfork has turned out to be incredibly influential at promoting discovery of relatively unknown bands. After a rave review on Pitchfork, Arcade Fire immediately began selling out venues all across the country, pointed out Bob Lefsetz, an independent music producer in Santa Monica and author of the Leftsetz Letter. "There will be the Google of the music business, and it will happen," said Lefsetz. "Someone will create the MTV, the Rolling Stone of the online music business -- the place to go for the online filter that tells you what you need to be listening to."

"A lot of people who had lost faith in the industry are very excited about all the possibilities -- the potential of finding out about new artists who have been flying under the radar," said Verna. "Clearly, there's terrific music out there, it's online, and an open field for companies to develop really great technology for filtering through the drek and finding the gold, and getting people to actually pay money for it."