Record Labels  (and content creators, in general)  have  faced many storms over the last 15 years. With the movement to digital content and the industry’s slow and grudging  adaptation to it, the industry has basically had Apple and others steal its lunch. The traditional model of picking artists and investing big in them has failed to deliver the goods. But now,  a  pioneering Dutch company SellAband  is  challenging the traditional business models in this industry and hoping to reclaim some of the former glory– by changing the risks inherent in content creation businesses! How?

 Think of  the business model of a traditional record label: Typically, they would have scouts try to spot promising new artists. Based on the picks of these talent scouts, they would then develop some of the artists– investing large sums of money in recording the music and marketing it. All these investments were made based on the faith in the scouts ability to pick  the most commercially viable.  A new company SellABand.com is turning this model on its head.

With the advent of digital distribution of music, it is no longer necessary to invest large sums of money in artists before getting any sense on their commercial viability.  SellABand.com exploits this– Artists can upload their latest creations on the website. Listeners get to sample some of these creations and they can invest small amounts of money in the artist- helping him/her fund further development, marketing,  touring etc. The amount of money to be invested is purposely kept to be small, to ensure wide acceptability of the artist. If an artist can collects enough money, the firm itself or record labels invest further substantial amounts of money.  if the artist turns out be a hit in the future, the small “investors”  and the record labels all get to share in the proceeds and the  listeners that supported the artist,  get special access to the artist.

Compare the risks in this model versus the risks in the traditional model. In this model, the record labels get substantial early information on which artists are likely to be most viable, in the traditional model the record labels had to basically invest blindly. This model of acquiring early information limits the risks that the record labels are exposed and they end up making fewer bad bets.   To be sure, this early information comes at a cost, they now have to share some of the  proceeds with the fans, but knowing that there are loving fans out there for each artsist that they promote, makes it all worth it. A few weeks back, we blogged about a similar strategy employed to revolutionize the furniture industry (check out our earlier post on MyFab).

We believe this is a new novel approach that holds substantial promise of bringing a renaissance to  many such high uncertainty industries: think TV and Movie production, venture capital, etc. The possibilities are endless..