13.3 Innovation through business models  (Page 3/3)

Artist-centered website hub

This business model uses one large website as a database for music. Content creators contact the website directly and set the price of their music. The website sets a minimum downloading fee to cover costs; the fee is set on a monthly basis (or on a per-download basis). Customers access the website and purchase all the music they want, knowing that the artist receives most of the profit.

Some websites are already implementing this model. For instance, CD Baby sells independent music that comes directly from the artist. Since this model cuts out several middlemen, CD Baby claims that artists receive USD 6-12 per album versus the USD 1-2 that artists typically receive through their record labels. There are currently 248,891 artists on CD Baby and over USD 87,052,087 dollars have gone directly to the artist since the company opened for business in 1998 (Hefflinger 2008).

Artist’s personal website

Another potential model encourages users to access the artist’s personal websites to purchase music. This approach allows the artists to have the most control over their music. The band Radiohead tested this model during the debut of their seventh album “Only in Rainbows.” The band alienated themselves from their record label, EMI, and offered the album solely from their website Radiohead.com. Customers who visited the site where allowed to decide what they were willing to pay for the album (Tyangiel 2007).

Although this model is attractive for popular artists, it is potentially troublesome for artists who are not well known. Lesser known artists have great difficulty standing out in a crowded market. This model also eliminates the record label.

Non-traditional “record labels”

Currently, independent record labels are sprouting up in unexpected places. In 2003, the Cracker Barrel Old Country Store created an American Roots record label called CB music, Ltd (Romero 2003). Starbucks, the eternally popular coffee house launched their own record label in March of 2007. Their plan involves signing artists (e.g. Paul McCartney) and selling records through Starbucks stores (http://www.starbucks.com/).

Tax-the-device model

This model follows the open content model, in that music is provided free of charge for music downloads. However, such downloads are tracked, and a sales tax is placed on all devices that are sold to play back downloaded files. The money generated from taxes is then used to pay back artists. Of course, this model is speculative in nature. At present, there is not a reliable method for tracking all downloads. In addition, devices sold outside of the US would be difficult to tax.

Summary of new business models

A major purpose in describing these music business models is to illustrate how innovations do not have to be tied to the success of a new good or service. Rather, an organization can innovate by introducing a new method of doing business, and such innovation has the potential to “turn the world upside down” (a la Google or Facebook).