Some MP3 artists scraping by without labels

Smith's one-man band, The Cynic Project, took the top spot on MP3.com's Payback for Playback chart in January, garnering the Stillwater, Minn., resident $4,789. And that was just last month. He also racked up money in December and November, the first month of the program. Combined with his CD sales through the site, the 17-year-old has earned more than $12,500.

So in exchange for about 100 hours of work, Smith is well on his way to having enough money to buy a van and hit the road or, more likely in his case, to pay his college tuition.

"I'm not going to spend it all at once; I'm going to buy more music stuff and put some aside for college where I'm going to major in computer science," said Smith, who has sold CDs to people in at least 25 countries. MP3.com, which burns the CDs based on demand, gets a 50 percent cut of artists' revenues but not exclusive rights to their music.

"The main point for me was to have some people look at my music and give me some feedback," Smith said. "But I don't see any other way of promoting my music; I wouldn't have shown it to many more people than my friends."

Call it "Star Search" meets the Net. Or call it making a living.

Thousands of artists are digitally encoding their songs so they can come online to share their creations and hook up with fans. Still, it can be a long wait before they get signed by a record label or ever see a dime for their work--and some of them never see either. Without the marketing and distribution power of the major labels, the Net is not expected to help launch the careers of one megastar after another. It could foster a boom in middle-class artists, however.

"It rewards artists that are producing great music that consumers are listening to the most," Michael Robertson, CEO of MP3.com, said in an interview. "As the concept of a music service provider becomes a reality, you can't rely on physical CD sales as the only way to compensate artists. There needs to be a digital payment system, and our Payback program is that system."

MP3.com's Payback for Playback divides $200,000 among its most popular artists each month. The program was supposed to end this month, but Payback will be extended for an undetermined period, according to the company. Some Payback artists take in unusually high sums for their work, but on average most MP3 artists are scrambling to make just a little cash, if any, through CD sales or by driving traffic to a music site, which can translate into ad revenue for the company.

Although MP3.com's digital royalty system is just one element in its business plan, it touches on some of the most explosive ripple effects of the Internet as a commercial music distribution channel. Figuring out how much an artist should receive for a download that does not return traditional revenue in the form of a CD sale, for example, is a difficult calculation--a fact underscored by MP3.com's decision to put a monthly ceiling on its Payback program.

And though MP3.com had an awesome initial public offering, it's unclear how long it will be able to dole out large amounts of cash each month to artists even if the traffic helps grow its advertising base.

MP3.com is just one of the sites offering incentives to give musicians income based on the Web traffic they generate. EMusic.com, the Internet Underground Music Archive (IUMA.com), Riffage.com and Artistdirect.com are among the other sites that have launched programs that range from 50-50 profit-sharing to giving artists a portion of ad revenue. AMP3.com, which started paying royalties on downloaded music in February 1999, has doled out $100,000 to artists so far.

These programs, however, are crawling along because of several hurdles, such as the difficulty of finding great artists amid all the noise on MP3 sites and the relatively small consumer audience for digital music, which is still growing.

IUMA, for example, says that about 2,500 of its unsigned artists sell CDs, but only 50 to 100 make more than $500 per quarter in sales. IUMA also gives artists 25 percent of the total ad revenue generated by their sites. Bands that do well on IUMA can get picked up by EMusic's labels.

The makeup of the top breadwinners on MP3.com and other sites indicates a trend that proponents of the digital music wave have predicted all along: Independent artists who would have had no chance or exposure are finding an audience and sometimes making a sustainable living by promoting their music online.

A case in point is that MP3.com's Payback artists cut across different music genres. The artists range from the most popular of the group, electronic music producers such as Smith, to 59-year-old Ernesto Cortazar Sr., a Mexican-born pianist who has spent most of his career conducting movie scores in his home country, but who launched his first "easy listening" solo effort on MP3.com last summer shortly after moving to the United States.

Cortazar's music has come in second all three months on Payback for a total of about $12,000. He's also sold 3,400 CDs via MP3.com and gets about 120,000 page views per month.

"He decided to open his music to MP3.com because he wanted to share it with his family in Mexico," said his son Ernesto Cortazar Jr., speaking on behalf of his father. Cortazar Jr. is the family's third-generation musician; the tradition started with his grandfather, a well-known lyricist in Mexico.

"It is making a totally new market for him because he is trying to retire from working on films," he continued. "To promote him offline, I'd need a lot more money. On MP3.com it only takes time."

Even better-known artists are depending on their MP3.com sites.

Kathy Fisher performed at Lilith Fair in 1998, and her song "Breakable" was on the "Great Expectations" soundtrack, which went gold. Typical of the music industry, her self-titled band, Fisher, has been together for six years and has yet to be signed by a record label. She is using MP3.com to prove to major labels that she has an audience.

Fisher has made $4,400 through Payback and has sold 4,000 CDs almost equally through Amazon.com, MP3.com and her P.O. box. Since she launched her page on MP3.com in April, her music has been downloaded 800,000 times.

"A lot of people have had false hopes about MP3.com being a record label for them," Fisher said. "We looked at it as a way to get the music out there to show labels that we have a fan base."

Fisher said most of the songs she's sold through MP3.com are material that she hasn't offered elsewhere, and that it's been cheaper and more successful to promote her band online than in the Los Angeles club scene. She supports herself with her music career; along with her sales and Payback money, she sings jingles and has produced children's music. Her dream is to work with her band full time.

"We've seen the brass ring so many times and had it yanked away," she said. "Having built a reputation through the Net, we can view the ring and step up and grab it--it's given us an edge."

Even the Payback artists admit that it's not a matter of slapping up some music and waiting for a check in the mail. Most have made significant efforts marketing their MP3.com sites themselves or cross-promoting with artists in the same genre. Smith notifies message boards about his page, Cortazar replies to his fan email personally, and Fisher says she thinks even her sexy CD art has played a role.

"It's going to enable artists to make a better living selling a smaller amount of material," said Steve Grady, vice president of marketing for EMusic, which sells digital tracks and albums by independent record labels.

Riffage.com also lets artists post their music for free and gives tips for promotion, but it's mostly a do-it-yourself service.

"What we don't provide is one-to-one promotion and marketing, but at some point we'll start offering premium services," said Marvin Sanders, director of artist relations for Riffage.

"But it's also nonexclusive--we don't own anything," he added. "They can sell digital downloads, CDs, T-shirts or bath salts from their site; we do all the fulfillment and only take a 15 percent cut. It basically flips the old model on its head."