Everyone knows that the music business has changed over the last 10 years. And everyone knows that Napster started the process. Napster combined the technique of CD ripping with MP3 compression (to make songs a reasonable size), made use of ubiquitous Internet connections to allow people to share and download songs, and tapped into the then-new technology of MP3 players to allow anyone to get music for free and play it anywhere.

The vast majority of people have completely bought into the idea that Napster pioneered. They now consider free music to be a right. This article is one of thousands that describe the current mindset:

Piracy Rampant Among Finnish Youth

An overwhelming majority of the surveyed kids (69%) admitted that they have downloaded copyrighted material in the past year. Even more so, 29% reported that they use filesharing applications to download music and movies illegally, every day.

Now there are thousands of ways to get music for free, while iTunes (and others) make it possible to purchase songs one at a time at a low price if that is what you prefer.

Everything about this new model is better. “Free” or “cheap” is obviously better than a $15 or $20 CD. The ability to store a thousand songs in your pocket is obviously better than a stack of CDs and a bulky CD player. The ability to easily move your music from your home to your car to your office to your morning jog is obviously great.

But how do artists make any money with free music? Selling songs on iTunes is a viable model as long as the artist (or his/her label) has low overhead. But it is still likely that the artist/label “loses money” because of the millions people who copy the files for free instead of using iTunes. The existing labels are trying other ideas as well, as demonstrated in these two examples:

1)From today, feel free to download another 25 million songs – legally
2) A catchy new tune

Anyone who wants to make more money than that is going to have to innovate. Given the “free music” mindset that everyone has, artists have to find a way to give their music away and make the money somewhere else. To see how one band is succeeding with this new reality, read this article about NIN…

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…and then visit the NIN web site to see how it works:

NIN.com

It is an amazing article because it goes behind the scenes to show the dozens of things that NIN is doing to make its fans happy. It also shows where NIN is able to make money. Summarizing the article, the model looks like this:

1)NIN creates a fan web site that caters to every secret desire of its fans. The web site has blogs, twitter streams, wikis, photos, videos, music files, and even master tracks for remixing. And it is all free.

2)Then NIN makes its money off of specialty products (e.g. Limited edition CDs), iTunes, merchandise and concerts.

In other words, fans have decided they will no longer pay for music. So the band tries to make its fans as happy as possible with the web site and then makes money on the things fans ARE willing to pay for. Two important quotes from the article:

“I’ve said it before and I’ll say it again: I don’t think music should be free,” Reznor says. “But the climate is such that it’s impossible for me to change that, because the record labels have established a sense of mistrust. So everything we’ve tried to do has been from the point of view of, ‘What would I want if I were a fan? How would I want to be treated?’ Now let’s work back from that. Let’s find a way for that to make sense and monetize it.”

Over the past year, NIN.com has quietly evolved into a series of interlocking services designed to deliver maximum benefit to the fans at minimal expense to the artist. To build it out, Reznor decided to use off-the-shelf resources — Blogger, Twitter, FeedBurner, Flickr, YouTube — rather than trying to duplicate what other people had already created. “They’re going to do a better job than we are,” he explains, “and they’re going to have a lot more resources to put into it.”

Using the existing tools is brilliant because it is cheap, easy and ubiquitous.

The one part of NIN.com that Reznor had custom-built is the piece that sits at the center of it all: the database of fan info that has been harvested from the registration process that’s required to take full advantage of the site. That database, created by Sudjam, is what makes the tie-ins with Flickr and YouTube work, but it’s also given Reznor 2 million e-mail addresses — which adds up to a pretty powerful distribution network.

“If The Slip had X number of downloads, we know who those people are and we’ll reach out to them with the next thing we have,” he says. A concert coming up in Atlanta? It’s a simple matter to send out e-mails to everyone within a hundred-mile radius of the city. “That seems to be the most valuable thing you can get — a way to reach people,” Reznor says.

So they use the songs as free publicity, and make the money off of concerts and anything else they can sell to their fans. It’s a whole new mindset.

What if you are an artist and you cannot (due to a lack of business and technical skills) or don’t want to (because you would rather be making music) go to all of the effort that NIN has expended? What will have to arise is a new form of “label” that does all the work that NIN is now doing itself. This new form of label will create giant fan-based web sites on behalf of artists. MySpace actually is a tentative move in this direction (and it is free to artists), but it doesn’t offer anything like the power of the NIN web site. Someone will figure out how to replicate the success of the NIN approach, add to it, productize it and then sell it as a package to artists. That, plus iTunes and sites like it, plus a service that arranges the concerts and handles the merchandising, is very likely to be what the new “music label” looks like five years from now.

Facebook, with its giant pool of members and an existing toolset, is one logical company to do this. MySpace could extend its offering and fill the niche. The existing labels could learn from NIN and then replicate its success for their artists. Or new companies could arise.

See also:
REZNOR URGES MUSICIANS TO DITCH LABELS
Welcome to the Free Music Archive
Open Music Archive
Radiohead: Filesharing good for music biz
How Recording Contracts Work

PS – The article describes how NIN uses torrents to make its music available for downloading. If you would like to get started using torrents, this video can help: