The music industry is suffering. The major record labels – which rely on CDs for most of their revenue – are in decline. CD sales in the US have dropped more than 20 percent from a peak of $13.4 billion in 2000. But don’t be fooled: The market for music is thriving. With the rise of peer-to-peer networks, the iPod, and other digital technologies – plus a 100 percent jump in concert ticket sales since 1999 – the world is awash in music. The industry now has more sources of revenue – ringtones, concert tickets, license agreements with TV shows and videogames – than ever before.

Record labels have always been the center of gravity in the industry – the locus of power, ideas, and money. Labels discovered the talent, pushed the songs, and got the product on the air and into stores. The goal: move records, and later, CDs. “The labels were never in the business of selling music,” says David Kusek, vice president of Boston’s Berklee College of Music and coauthor of The Future of Music. “They were in the business of selling plastic discs.”

Musicians generally make very little from the sale of their records. The costs of production, marketing, and promotion are charged against sales, and even if they go multiplatinum and cover those costs, their cut of any extra revenue is usually less than 10 percent. On top of this, the labels typically retain the copyrights to the recordings, which allows them to profit from the musicians’ catalogs indefinitely. “It’s as if you received a loan for a house,” says Ed Robertson, one of BNL’s lead vocalists. “But when you finish paying off that loan, the label says thank you and keeps the house.”

And, funny thing, this model isn’t just bad for artists, it’s increasingly bad for business. Because the label makes most of its profits from recorded music, much of the money spent marketing an artist benefits third parties like concert promoters and music publishing companies. In addition, copyrights to a piece of music are usually divided between a label and a publisher, which collect royalties every time the work is recorded, performed, or played publicly. “What other business splits up its key assets and sells them to separate businesses that wind up in conflict with each other?” asks Duncan Reid, a venture capitalist who now helps run UK-based Ingenious Music.

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