Where did the music industry go so wrong?

Labels set the deal terms for artists. Managers handled the "biz." The touring circuits were maintained by well-mannered warlords that politely divvied up the venues. And everyone had their place in the pond.

So where did it all go wrong with the music business? Somehow, the pond became stagnant over time, mucked up with greed, laziness, contempt and excess. People got bored with music. Then, someone threw a rock into the middle of it called the Internet, and nothing will ever be the same. Today, anyone can hum a tune, mix it with a rhythm track and some samples on their Mac at home, put it up on MySpace.com, and end up with a publishing deal from Moby, which will then sell it to the next Super Bowl sponsor.

The industry has become decentralized. Major labels no longer have the market muscle or control over the distribution channels as they once did. Technology and consumer choice have caused a shift from the traditional music business model of major labels throwing copious amounts of money behind a few big hits to that of a vast collection of individual artists creating pockets of more moderate success among passionate fan bases.

This shift requires a different approach to the development and monetization of music by the producers and promoters--one that more directly resembles that of more traditional venture-backed business. The entrepreneurs (artists) create new intellectual property (music, artistic brand) that has a demonstrated market (fans) that is robust enough to attract investors (for example, a label) that wants to own some equity in that IP and wishes to put money into the asset to enable it to engage in value-building activities (distribution, merchandising, licensing, and so on). Oddly enough, this "new" model is, in fact, not new.

We've all heard of The Grateful Dead, Phish, Ani DiFranco, Aimee Mann and the Barenaked Ladies. These great artists have grassroots beginnings. They all employed clever uses of the technology available to them at the time to find fans and create direct distribution channels (from bootleg cassettes and toll-free phone orders to MP3s and e-mail distributions). Using these methods, these "artist-entrepreneurs" have circumvented the traditional channel gatekeepers and have blazed a trail for the rank-and-file working artists and the weekend warriors to follow.

Now all serious artists need to conduct themselves as entrepreneurs engaged in building a business, not just playing and selling music. There are many tools and services out there that artists can use to help them sell. Still, it's not enough to put up a MySpace page and get a song on iTunes. They need to build a brand that has long-term value. They need to own that brand and their customers outright. There is a need for artist platforms that make this process more efficient so the economics make sense. Those solutions increasingly are becoming available.

Investors--including the major labels--need to understand the intricate partnership role they play in development. It's no longer about throwing money into the ether, marketing to no one in particular, and seeking only mega-hit payouts. It's about patience and commitment and focus. The labels--or their successors--need to get down to sea level, pick up an oar, and help row with the artist into this new ocean of opportunity.