With all the doom-saying about piracy, it's easy to become disheartened about the state of the music industry.
Far from it.
Just like the shift from selling sheet music to recordings hurt the legacy industry of music publishing, the new digical landscape is the newest change in the landscape of the music industry.
And it's the best it's ever been for small bands.
1. Less middlemen = more money in artist's pockets.
Every intermediate link between the fan and the artist take a little bit of money out of the equation. The economics term is rent-seeking, or using structural factors to increase one's share of existing wealth instead of creating new wealth.
Remember Louis CK's million dollar self-release? He released an entire special via a $5 direct download on his website. With no unnecessary links in the chain between Louis and his fans, there was so much money on the table that Louis gave half of the money to chairty and a quarter to the production crew that helped create the special.
Selling a 99 cent song on iTunes gives the artists 79 cents back. Back in 90s, each $15+ CD Toni Braxton sold earned her only 35 cents, which lead her to declare bankruptcy twice. And this was after being certified 8x platinum in the US.
2. Dedicated fans are becoming a larger and better source of funding than major labels / corporations.
When game design great Tim Schaefer wanted to fund an old-school adventure game, he knew he was out of luck getting a major player to take a big risk on a largely ignored genre of game. So Tim started a kickstarter page with a goal of $400,000. He raised $1,000,000 within a day. This year alone, Kickstarter is expected to provide more funding to small artists than the National Endowment for the Arts.
But the amount of money raised isn't the only import issue here. This is also about control.
Signing a contract with a large company to record an album means you're giving up total creative control. Suddenly your music has baggage and you must use this producer and release this way. Stifling.
When your fans fund you, the only thing they want is for you to be yourself.
3. The middle-ground is hollowing out. Niche is in.
Major labels are Wal-Mart, they need to move hundreds of thousands of units to just break even so they shoot of safe, middle-ground music. (Here's my post on how to sell out properly) Depending on their budget, indie bands can break even with only 10,000 album downloads. It's a lower bar to clear, meaning it's easier for risky projects to succeed.
Given the reach of the internet and the irrelevance of having your music physically in stores, it's easier than ever to connect with these fans of your post-polka-core band instead of begrudgingly accepting that a label will never pick you up.
If you're starting a new grocery store business, trying to compete with Wal-Mart is suicide unless you have infinity plus one dollars. Start an artesan cheese shop instead.