Yesterday fan funded band site Sellaband was declared bankrupt by a Dutch court.  This may be ‘just another digital music start up that burnt through its investment money with no proven business model’ but its demise is disappointing.

Semi-pro sites and services are a crucial part of the digital music ecosystem and despite this setback they will grow in importance.  Services like Sellaband, MyMajorCompany, TuneCore, Sound Cloud and MySpace, each in their own way, lower the barriers in the artist-fan relationship. They enable artists to reach out directly to their audiences and develop engaged relationships that make the fans feel a part of things.  The shift from photocopied fanclub newsletters mailed in the post, to active online fan communities is little short of a quantum leap. The advent of social music tools are the music business equivalent of the transition from the stone age to the bronze age.

Of course if you follow my analogy on, there’s still a lot of distance to go before we reach the iron age and beyond. SellaBand wasn’t the first high profile victim (anyone remember Snocap?) and it won’t be the last. 

Back in December I predicted strong progress for semi-pro sites and services. And though I qualified my prediction with stating 2010 wouldn’t “be their year” I didn’t expect SellaBand’s demise either.  I remain convinced of the potential of these sorts of services and it is crucial for artists and the music industry more broadly that these social music tools prosper.  If they don’t then so much of the Internet’s potential remains untapped.

Just came off the stage at PaidContent 2010, a day-long summit here at The Times Center near Times Square, dedicated to the question of if/how/when people will pay for content. The timing is good -- as I wrote in January, The New York Times is planning to charge for content within a year or so, Hulu is considering a subscription model (not necessarily in place of but, I believe, in addition to its free service), and the eBook pricing dilemmas are causing sleepless nights.

I opened the conference with a brief assertion that fretting over whether people will pay for content is based on a mistaken assumption: that people have ever paid for content in the past. They actually haven't. Instead, people have paid for access to content. But in an analog world, access was gated by physical form factors like vinyl, newsprint, and movie theaters. As a result, the coincidence of form factor and content made us believe that people pay for content.

But people have never paid for content. Even when a daily newspaper was a necessity for the average home, the dime you paid a day (in the 70s) for a newspaper did not cover the print cost, much less the reporting. Instead, it was classified ads and auto dealers who footed most of the bill. And the hours we spent on TV and radio every day through the last half of the last century until the explosion of cable in the 90s, were all free. When cable finally asserted itself, people did not pay per show or even by channel (with the exception of premium movie channels). Instead, they paid for overall access.

Real Networks yesterday announced that they intend to spin-off music subscription service Rhapsody as a stand alone business.  Rhapsody has long been held up as the best of breed music service, but in the age of Spotify and Comes With Music it and other premium rentals have increasingly struggled to maintain relevancy.  Spotify and Comes With Music each may have fundamental business issues and are very different offerings, but they both provide unlimited music free at point of consumption.  Once you have that proposition in the marketplace selling 9.99 rented streams looses its shine, however good the discovery and usability may be.

This time two years ago Rhapsody, Napster and Yahoo had about 1.8 million paying subscribers between them.  Since then Yahoo got out of the game (passing its subs onto Rhapsody), Napster got sold and the total count is now around 1.3 million. So just as the music industry is meant to be booming online, its premium tier sheds over a quarter of its value across its heavyweight proponents. 

The simple fact is that charging 9.99 or more a month for music that often only sits on your PC is not a mass market value proposition.  It’s great for aficionados but mass market consumers aren’t used to buying music that way. 

So is this the end for subscriptions?  No, not at all, in fact they’re doing better than ever, it’s just the old guard that is struggling to keep pace.  A new generation of subscription services are being built that place portability at their core and that often hide some or all of the end-cost to consumers.

Let’s take a quick look at the numbers, here are total paid subscribers by territory (all numbers are approximate):