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In this economy, it’s hard to imagine anyone making thousands of phone calls trying to give money away. But that’s exactly what is happening as Sound Exchange contacts musicians who have earned, but not yet claimed, digital performance royalties.  And they are building their database fast, by tapping into the cloud of musician profiles available online. How cool is that?

Sound Exchange is a performing rights organization undertaking a massive education campaign about the fact that the rights and revenue exist, and how to go about getting the money.  In the past few months alone, thousands of artists have been contacted.

When sound recordings are streamed on the Internet, played on digital satellite radio, or used on cable music channels, the performers on that recording accrue a small royalty. Those digital performance royalties are collected by SoundExchange, who processes logs from services and distributes the payments to artists. Unlike other royalty societies, who collect and distribute only to their members, SoundExchange collects royalties for all performers, then has to locate and register artists so they can be paid.

If you want to get paid, you have to register with them at Sound Exchange. If you think your music has been played on Sirius-XM Satellite Radio, Internet radio such as Pandora, Yahoo, Live 365.com and AOL, or on digital cable and satellite TV services like Comcast’s “Music Choice” and DirecTV, you can collect.

The data being collected by today’s digital music companies is being knitted together to connect the dots between online listeners and the copyright holders.  By partnering with CD Baby, ReverbNation, SonicBids, Nimbit and others, Sound Exchange is tapping into the long tail of the market, and rewarding musicians who have online profiles – with cash.

CD Baby says they were notified by Sound Exchange that many of their artists were owed money.  They matched their databases and found that thousands of artists had not registered with Sound Exchange and therefore were not receiving their payments. CD Baby then reached out to these members with the good news.

According to iLike founder Ali Partovi, a database matching effort for artists that had uploaded their information onto iLike found more than $8 million for more than 8,000 artists. According to Partovi, the $8 million was just a first-run effort, and a broader initiative involving MySpace Music remains forthcoming. “MySpace has a much larger database, so we’ll be unlocking even more money.”

To stake your claim visit Sound Exchange, or to send an email to info@soundexchange.com

(Friday Feb 6th, 2009) the digital distributor to college campuses Rukus shuttered its doors with this notice: “Unfortunately the Ruckus service will no longer be provided. Thank you,” That means lights out for a number of colleges, universities and students who had signed up for “free” ad supported music.

Ruckus, first hatched in 2003, was acquired by TotalMusic, a collaboration between Universal Music Group and Sony Music Entertainment.

TotalMusic itself (reported on here in 2008) is also now being shuttered, at least according to details shared by Vice President of Product Management Jason Herskowitz in Digital Music News.

“I regret that we didn’t get to show you guys more about what we built – but in these extremely hard economic times it’s hard to blame them for pulling the plug on a still-highly-speculative offering,” Herskowitz offered. “I only hope that someone else figures out how to crack this music-on-the-web nut in a way that is a win for everyone in the value chain,” Herskowitz continued. “The problem is that to make a music service a win for everyone, all of the famished participants have to sit at the table – and be content to let all the others have a little bit to eat, even though they are still hungry themselves.”

It is clear that protected music locked up in a highly controlled service is just simply not what the consumers want anymore, if ever. Continued pursuit of a rights-managed solution that attempts to preserve the status-quo of copyright holders controlling the distribution of music is futile. No more money needs to be wasted on looking backwards.

Instead, lets all come together and help to create systems that embrace frictionless distribution of music and respect the desire of the music consumer to select what they want to listen to. If we make it easy for them to find what they want, more will come. If we make it cheap enough so that the music appears to be free, move will come. If we make it possible for people to spread the word on a new service that suits their needs, more will come. We need to look forward, not backwards and admit that the old game is over and a new game has begun.

I met with Derek Sivers this past weekend (founder of CD-Baby) and asked him what he thought about the recorded music business and the decline in CD sales. He said “well I’m not quite sure what you mean Dave, as sales of indie music at CD Baby have increase at least 30% in 2008 over 2007.” What CD Baby does is provide a way for indie artists to sell their music online in CD form, to sell their music online in digital form and to provide distribution for artists who had none. Many of these artists are thriving now because Derek was willing to think different.

TuneCore is another service that lets artists put their music online for distribution through iTunes, Rhapsody, Amazon, eMusic and other services for a small up-front fee. This is a radical business model that looks forward, not backward, and pushes indies artists ahead on their journey.

New companies such as Lala, iLike, TopSpin, ReverbNation, SonicBids, Nimbit and many, many others are taking radical new approaches to indie artist promotion and distribution that will change the way that the music business functions. Connecting artists directly with their fans in a meaningful way that respects that relationship and lets it thrive is the way of the future.

Artists need to band together to assemble the knowledge and power that is required to propel them into the future. Watch this space for much more on this subject in the coming months. It is time for a revolution in thinking about music commerce and sustainable models for artists and their fans to connect and engage and prosper and interact. This is what the future of music is all about.

Want to know what’s up with new music startups? Read on. Great coverage by Paul Bonanos from The Deal. So good to see mainstream financial coverage of our music industry.

Striking a chord

A decade after Napster, a new crop of Internet startups is challenging the music industry’s dominant companies. Their instruments of choice: social networking, discovery, ad-supported streaming, marketing and other tools that change how business is done.

New Music Startups

Source: Tech Confidential

U.K.-based We7 Ltd., which has drawn funding from British musician Peter Gabriel, along with VC firms Eden Ventures and Spark Ventures plc, both of London, offers free songs that contain short advertisements that vanish after a few weeks. We7 recently added songs from a third major label, while SpiralFrog signed up only two of the four majors, meaning that finding free songs can still be something of a wild
goose chase.

Nashville’s NoiseTrade, a bootstrapped startup, provides a way for artists to give away music in exchange for the e-mail addresses of prospective new fans, while angel investor-backed TrueAnthem Corp. of San Francisco connects brand advertisers with musicians, who introduce tunes with short, personalized ads.

Consumers less inclined to possess a virtual copy of a song also have more options. That includes subscribing to libraries of music content and Web sites that allow streaming songs on demand and limited downloading. Publicly traded RealNetworks Inc. of Seattle has emerged as a clear leader among such products with its Rhapsody service, while the existing Napster, which purchased its trademark from the original bankrupt startup, has lost subscribers and remains far from profitable. Both companies offer several tiered plans, ranging from roughly $10 to $15 per month, that provide access to millions of songs from all four major labels, as well as “tethered downloads,” or DRM-restricted files that expire once a customer cancels his subscription.

The market for free music “streamed” on a Web site is more complex, with some startups relying on subscription services to supply songs through their own user interfaces. Most streaming services are married to some other Web utility, whether a social networking site, music discovery service or
paid-download store.

With investment from VC firms Sequoia Capital and Morgenthaler Ventures, both of Menlo Park, Calif., as well as from Universal Music and Warner, social music site Imeem Inc. of San Francisco has built the fastest-growing free streaming service. All four major labels now supply music to Imeem, which lets users play songs on demand.

Imeem’s growth highlights the pressure on “old music” companies, like other old media firms, to change with the times. And the legal battles between upstart music firms and incumbents have been no less intense than the fights in other quadrants of the media industry, such as the ongoing court dispute between Google Inc. and Viacom Inc. over the search giant’s use of protected video on YouTube. Warner sued Imeem in 2007 over alleged copyright infringement, only to later buy a stake in the startup after settling the case.

“Sometimes a lawsuit is foreplay to a licensing deal,” says Norwest Venture Partners principal Tim Chang of startups’ path to legitimacy in the age of free music. “They infringe so that users get what they want and advertisers pay attention, scale so that you have some leverage against labels, get sued and then settle.”

The digital-music business is entering a phase common to many emerging high-tech sectors. The land rush of startups that follows any significant technological shift, such as file sharing, is already starting to thin out as winners stake their claims and losers get consolidated, if they’re lucky, or simply disappear.

For example, Last.fm rival Pandora Media Inc. faces a fight for survival despite having attracted prominent venture investors and a slew of good publicity. The Oakland, Calif., startup employs music experts to create a recommendation “engine” for Internet radio. But an upcoming regulatory change that will result in a doubling of streaming royalty rates for Web radio companies could spell the company’s doom unless it elects to charge users a subscription fee or finds a way to add advertising that its audience will accept.

Like Pandora and Last.fm, music discovery site iLike Inc. of Seattle has become popular, if not consistently profitable. One key to its success in attracting users has been its availability over Facebook Inc. of Palo Alto, Calif., through which more than half of its 30 million users connect to the service. Through a partnership with Rhapsody, iLike allows users to stream as many as 25 songs per month and download selected others for free while examining their friends’ tastes and recommendations. The startup has raised $15.8 million in two rounds of funding from former Time Warner Inc. executive and MTV co-founder Bob Pittman, star venture capitalist Vinod Khosla, and the Ticketmaster unit of IAC/InterActiveCorp of New York.

“There’s a natural propensity for social networking and music to go together,” says MySpace founder Brad Greenspan, who left the social network in 2003. “When you’re surfing people’s profiles and everything starts to look the same, the only way to differentiate among them is their individualization. And if you add an image of an artist on a site, you will bring in people who want to be close to that musician’s energy, whether by blogging, chatting, befriending or following them.”

Drawing on such desires, music-blogging hub MOG Inc. of Berkeley, Calif., wants to tap into fans’ efforts to spread the word about their favorite artists. Universal and Sony BMG joined the Angels’ Forum of Palo Alto in putting $6 million into the startup, which compiles the musings of volunteer bloggers writing on given musicians and bands. MOG, which also offers on-demand music, represents a one-stop version of the musical blogosphere, where songs are commonly shared without compensation for content owners.

Also harnessing the power of the blogosphere are music-focused search engines such as the bootstrapped Hype Machine Inc. of New York and angel-backed Seeqpod Inc. of Emeryville, Calif., which index thousands of music blogs where MP3s often reside for a few weeks so users can sample them.

Another area where Internet startups are encroaching on the record labels’ turf is marketing. Launched this summer, Los Angeles-based Topspin Media Inc. enables artists and fans to communicate directly, offering a sort of customer management technology package for musicians that allows sales of songs, albums and merchandise. Under one subscription option offered through the company, a fan can pay a flat fee for a musician’s entire recorded output over the coming year — income a musician might otherwise have to share with a label. Venture investors are on board, with Topspin having raised funding from Redpoint Ventures of Menlo Park and Foundry Group of Boulder, Colo.

But rampant music piracy continues to dwarf legitimate sales, cutting label revenues by as much as half since the mid-1990s. Meanwhile, work that had long been the province of music companies has been gradually appropriated by newer, fleeter Internet companies or, as with marketing, “disaggregated” out of existence. Other competitors also have emerged. LiveNation Inc. of New York, a publicly traded live music promotion company spun out of Clear Channel Communications Inc. in 2005, has signed top acts, including U2 and Madonna, and has sweetened its deals by letting artists maintain ownership of their material.”

If so, what will the business look like? A dying era of superstar acts may give way to a music scene carved into myriad niches, with proliferating media channels creating room for more voices — the “middle class” of artists, as Rogers puts it. Artists and fans will operate in closer proximity, with more tools in place to help them connect.

How, then, will music derive its commercial value, and where should investors place their bets? The future is likely to include more sponsorship and patronage. Imagine liquor companies, fast-food joints and other advertisers paying the band of the moment for rights to its music before it’s recorded rather than after it hits the charts. Alternatively, rich benefactors — or legions of fans — could support artists in exchange for early access to a new album or even a shout-out in the liner notes. Tie-ins with other media such as video games will also create opportunities: People may not buy the album for $15, but they’ll pay $39.99 for the “Guitar Hero” version.

The old ways, reinvigorated by technology, are made new again.

Read the complete article at The Deal.

The state of the music business is obviously in transition, but new models are beginning to work at various levels that shine a very positive light on the future of the music industry. For example, some of the predictions made in the Future of Music Book and in other places are beginning to come to pass, such as the abandonment of DRM, music subscription and licensing services, ad supported music and the ascent of the Indie artist and Indie label. Take a look at these examples:

You can now purchase MP3 files for download without DRM from all four major labels on Amazon.com, emusic and a growing list of music destinations. The predictions that an unprotected format would kill sales have simply not been true. These businesses are exploding.

Early proponents of the subscription models Napster and Rhapsody have survived and are growing.

There is active discussion of a flat-fee structure for music at major labels where once we were laughed out of the offices.

Indie Labels now account for upwards of 30% of total music sales, up from the low 20’s just a few years ago. This is a profound shift in the powerbase that favors the independent artist and innovator.

Social music sites such as LastFM, Pandora, iLike and many more are making the fans into tastemakers with the ability to promote and share great new music at the touch of a button.

This is all very good news for musicians, writers and artists who want control of their destiny and their careers.