Online music is transforming the music industry with musicians and distributors rewriting the rules at the expense of the record labels.

The way music is produced, sold and heard is changing thanks to the Internet. The Web has become an outlet for struggling musicians who can now distribute their own music, bypassing major record labels.

At the forefront of this is, an online community of musicians that is becoming the Internet's answer to a record label. CEO Ali Partovi told CNN: "Over the last five years, musicians outside the major label system have created three times as much music (as held by the major record companies). And I think that's just the start."

But the emergence of the new audio landscape has undermined the business model of the music industry, which is to squeeze less profit out of fewer bands and attempting to ward off losses by a frenzy of mergers, says the report.

Partovi said: "A big part of what's wrong with the music industry is while the trends over the last 10 years have reduced the cost of music production, the music industry has not figured out how to change their model."


Since the Internet can put production and distribution in the hands of the artists, the CNN report asks: "What role do record labels serve?"

The answer is marketing. The report indicates: "Attracting attention has become even more difficult in the digital age. Major record labels are well positioned to exert their ability to secure extremely expensive airtime on radio and concert venues."

President of the National Association of Recording Merchandisers Jim Donio said: "The marketing muscle that the big labels have can't be underestimated. The power of the Internet can't be underestimated. If you put the two together, they can't be underestimated."

Partovi agrees: "The primary role of the music industry is to have artists be heard above the rest. It's a big needle in a haystack problem. The Internet has the service and tools to find the needle in a haystack."