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Major labels pick up the beat of online music
(CNN) -- As founder of the seminal rap group Public Enemy, Chuck D has never shied away from confrontation. So, in May of 1999, he fired one of the loudest shots in the online music revolution:
"I'm looking to be public enemy number one and a force to be reckoned with this new technology."
Public Enemy became the first well-known group to release a full-length album as a digital download. And the group did it at AtomicPop.com, an independent music Web site run by former record company chief Al Teller.
"It was very exciting to see people from all over the world go online to download these bytes on their computers," Teller said. "We sold well over 1,000 electric downloads of this album."
It was far from the 500,000 required for a gold record. But it was important just the same.
The consensus in the online world was that the genie was out of the bottle and that digital music distribution was a giant threat to the big five record labels.
"This is revolution, not an evolution," Teller said. "The Internet has completely changed the rules of the game."
When Teller made that statement last March, it seemed that Atomic Pop was well-positioned to take advantage of the record industry's slow response to the Internet explosion.
"When a new artist breaks through in a very massive way, and everyone can say, without any hesitation, they broke online, the dam will have burst," Teller said.
But things didn't work out for Atomic Pop quite the way Teller had planned. In mid-September, the company quietly closed its doors, citing current market conditions, for what it called a major restructuring.
"It's really a tough time to be in online music right now," said Hane Lee, a staff writer for The Industry Standard magazine. "Obviously, there are these high-profile lawsuits against companies like Napster and MP3-dot-com."
And while Atomic Pop was trying to do it in a way that was legal and not as threatening to the way things are done, the Internet still represents a threat to the traditional music business, Lee said. "And investors, frankly, are sort of wary of that right now."
One of the changes Teller was trying to make was to the financial rules of the music game. While major label artists get about a 10 percent cut of each CD sold, Atomic Pop was entering into 50-50 partnerships with its artists.
"Their philosophy was that we're not going to spend much on marketing and traditional kinds of promotion," Lee said. "We're going to take advantage of the Internet, which lowers all those costs, so we'll be able to pay our artists more."
It was a good idea in theory, but it fell short. It may take major music muscle to get an artist's work noticed on the Web.
"What labels are very good at doing is building up an artist's brand through their tremendous marketing network," said Aram Sinnreich, an online entertainment analyst at Jupiter Communications.
"No question, we will see bands broken on the Internet," Sinnreich said. "The Internet provides amazing one-to-one marketing possibilities. But eventually, they're going to have to migrate over to the traditional labels if they want to grow into platinum and gold sellers, because nobody else has the kind of support that labels can provide at this point."
One online record label has found a way to have its cake and eat it, too. Farmclub.com is similar to AtomicPop.com, but with one big difference: It was started by the powers-that-be at Universal Music Group, and there's no doubt that major label backing has helped fuel its success.
Farmclub President Andy Schuon says the original idea was to allow artists anywhere in the world to upload their music to the site, where it can be heard by the company's talent scouts.
"It's kind of using technology to provide a more efficient way to find the next big artist for our record company," Schuon said.
And a lucky few do win the music business equivalent of the lottery: a chance to appear on Farmclub's weekly television show.
The show is essentially an infommercial, purchased by Universal on the U.S.A. Network, but it has become an important stop for established acts as well as newcomers. With more than a million viewers every Monday night, it has proven to be Farmclub's best promotional tool.
Though the major labels have been slow to react, Farmclub.com is an indication that their starting to catch on to this whole online music thing.
Still, as technology advances, Chuck D for one refuses to give up hope for a do-it-yourself alternative. And he continues to run his critically lauded hip hop music destination, Rapstation.com.
"Two years from now, we could see a million artists and a million labels all operating on the Internet," Chuck D said.
But for Teller, it may have just been that the timing was off.
"Atomic Pop was a great idea from the start," Lee said. "It was trying to put control into artists' hands and back into consumers' hands and ... to give people more options than just going through the major labels
"I think it was a great idea and it's too bad that it didn't work out."
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