We created a new entry in the P2P Encyclopedia, called Open Music Business Models, to monitor the topic of earning a living through free music.

The following citation from the Techdirt blog is a good recap of where this is moving towards:

“”The new business models have the potential to be much bigger than the old ones. This is based on a few simple ideas that really shouldn’t be that hard to grasp, unless you’re desperately tied to an existing business model and unwilling to change. First, treating all your customers as criminals doesn’t create much loyalty or willingness to buy your product. Especially in a market where the product is based on being a fan, not filling a need. You want your fans to be happy — not pissed off. Second, the basic economics are there. On the supply and demand curve the supply of digital goods is infinite, meaning that the trend over time will absolutely be for the price to get pushed towards zero. It’s just the way the market works. That’s not a bad thing if you embrace it and recognize that, rather than lost revenue, free content represents free promotion. After all, the hardest part of becoming a success in the music business is the marketing to get your product known. The third, and final, aspect of this is how new technologies have dramatically decreased the costs of every other aspect of the music business. Creation, publishing and distribution are all now much cheaper due to the onward march of technology, forcing a shift in how we think about copyright issues.

Based on all of this, it’s not hard to come up with a variety of different business models that are based on

(1) using the music as a promotional good to get a lot more attention in a crowded market

(2) offering customers what they want, and offering them plenty of different ways to get it and

(3) building tremendous loyalty from happy customers who feel much closer to the musicians and are much more willing to spend money on secondary products (merchandise, concerts, access). Plenty of musicians have figured this out, and now it’s moving further and further away from being a “fringe” idea and into the mainstream music business.”

One of the examples mentioned in the article is the Sell A Band initiative, in which the fans themselves invest in promising new bands, in return for a part of the profit.

“The concept works as follows: Self-recording, unsigned artists upload their own profile page on SellaBand, featuring 3 (or less) demo songs, some pictures and a biography. Artists can use their page to promote themselves, encouraging their friends and fans to direct others to the site, and listen to their free music files. Music-lovers — “Believers” — can purchase Parts in $10 increments, in the bands/artists they believe in. SellaBand provides a high standard search engine to enable potential Believers to find and identify an Artist. Believers have the opportunity to help promote their favorite bands, while at the same time participating in potential future revenues of the artist they believe in.

Once 5,000 Parts have been sold, the real action starts for the artist and their fans. With $50,000 in their account, the door closes and it will be no longer possible to purchase parts, or to take money out. However, before their band of choice has reached the target, music fans can switch their investment to another band, decide to invest more money, or withdraw their investment altogether. The $50,000 resulting from parts sold, will be used to record a CD (a collection of 6 songs on average) in a good studio, with a solid A&R/production team to support the band in their effort to get maximum result. Precisely 5,000 copies of the CD will be printed. This so called “limited edition” will be sent to the homes of the Believers who have bought a Part in the band.”