Record companies are not enjoying the digital information revolution. Last year I ran into Magnatune, which is attempting to be the the first real Internet-era record label. Their motto is “We Are Not Evil“; and this is echoed in their commitment to no DRM, high quality CC by-nc-sa licensed try-before-you-buy mp3s, decent payment of artists, and full CD quality downloads.

One of the distinctive features of Magnatune is that customers decide the price they pay for an album (between $5 and $18). Because buyers know that a full 50% of what they pay goes directly to the artist (rather than the measly 5% or so that artists usually get when you buy a CD), they are often willing to pay even more than is recommended.

Radiohead recently tried a similar scheme with its new album In Rainbows.  Similarly, they found that fans are even more willing to purchase music when they know their money isn’t being hoarded by a greedy middle-man.

Record companies were a necessity in an era when the cost of recording and production was prohibitively high for individual artists. The digital age has significantly lowered this entry barrier, and it is much easier for musicians (and film producers, and authors, and photographers, and …) to succeed without signing their rights over to massive businesses.

The record labels are right to be scared.