Finding the new and lucrative business model is the biggest question in the music community today. I don’t think there will be just one. The opportunity for several new initiatives to emerge is all around. I’m collecting information and will discuss examples from the industry on these new models, but first, let’s look at how we got here.

Here are 4 of the biggest drivers that changed the music industry:

1st - The proliferation of access to web - Today, everyone is connected to everyone. With hindsight, the motivation for most people (outside of business) getting connected was email (Are you online? Let’s email!). And then, almost by accident, their connectivity enabled something else - sharing. With a way to communicate with each other, friends started sending along new music with their emails.

2nd - The replication cost of a digital file is zero - It is very easy to copy a file. One of the first activities you do on a computer is learn how to make copies of files. It’s one of the fundamental operations in a digital world. With digital music, once you (the musician) have produced a track, there is no additional cost to make one hundred million copies of the file and send it along to your fans. Try doing that with a CD.

Corollary: Protection of digital files is hard - The protection issue is a little trickier. There are attempts to protect music, but most schemes are quickly defeated. The most effective schemes combine the protection among the music, the software player, and the hardware device. This method is also the most cumbersome. Besides Apple, who has access to all of those pieces?

3rd - the proliferation of recording software - This trend started way back when 4-tracks and similar machines were released. (I remember my Tascam with much love.) As computers moved to the mainstream consumer, the music software packages became more usable and accessible to the layperson, and the learning curve for production became lower. Suddenly, more people could start making reasonably well produced music. (Notice I didn’t say good music.)

Today, I would argue that making a demo of your song has reached zero dollar cost. Setup your webcam and microphone. Record yourself playing your song. Post it on youtube. Voila. ( If you think American Idol is rough, wait until you hear the feedback from the Interweb.)

4th -the rise of P2P networks - The original Napster ( then Gnutella, then Kazaa) made it much easier to distribute and share files. When these programs reached the masses, you didn’t need to rely on your friends. Rather than waiting for someone to email you a song, you could just make a quick trip out to Napster and find good things to listen to. Now, to be fair, the courts found that practice to be illegal. Nevertheless, those P2P programs were the first indication that the tide was going out. I think we’ll look back and consider that timeframe (1999/2000) as an inflection point in the music industry.

These are the big drivers that changed the industry. Their impact hasn’t been fully realized and some people still haven’t accepted that the change is here. We start looking at the business models next.