There have been several major phases in the history of music as a business. All of them have quite different models of monetisation. Welcome to the newest one.

While there are still transcribers and publishers of sheet music, they are no longer the dominant force in the music business they once were. Nor is performing in the Music Hall the career it once was.

Let’s look at some of the main ways in which people have made money from music over the years. All still exist in some form or another — but each has had its day. Every time a new technological development comes along, the ratio has been shuffled around in order to make room for the new player in town.

And every time it happens — the dominant force in the industry kicks up such a fuss…

We think of Bach as having existed in the age of the dinosaurs, but honestly, it was just a few generations ago that the most revered musical talents of their day were dependent on the indulgence and enthusiasm of a rich benefactor. Usually these were members of royalty or nobility, and their patronage was hard to come by — but as keepers of culture, it was only right and proper that they selected and encouraged music by artists whose works glorified God — and their paymasters.

Live Performance
Of course, the patrons of the arts were horrified when music performance became a commodified entertainment for the masses, rather than an edifying or uplifting cultural health food for those worthy of culture. But musicians, and their new business associates, found they could do better when their pay came from the pockets of the many, rather than of the few. And entry to the profession was suddenly much more open.

Print Publishing
The birth of sheet music was, of course, the death of the music industry. If people could play the music themselves at home on their pianos, then who would attend concerts? Mass production of popular song changed the way that audiences engaged with and consumed music. It didn’t kill the concert hall, but it was certainly witness to its serious injuries.

Famous artists who had made names for themselves in the concert halls could enjoy renewed revenue with the birth of recording. Not only could you now have the music of the stars of stage and screen in your home… you could hear the stars themselves performing it. Magical. Sadly, the entire industry was more or less built on sheet music, and the “death of music business” happened again. Besides, recordings hurt the ongoing careers of working musicians.

With the birth of radio came the newest threat to the music business. If people could hear music at home without buying the recordings, then why on earth would they spend money on music any more? This latest development led to boycotts, lawsuits and charges of piracy. Of course, we now know that radio is the single strongest driver of music retail sales, and it also generates performance royalties, even absent a music hall.

Getting played on radio was one thing — but having your song used in a film, a TV show, commercial or videogame is something else again. Suddenly one of the quickest and best ways to make money out of music was to associate your music with something that large numbers of people will see, rather than just listen to. And the interesting thing was that it was no longer the audience who was parting with cash.

So there’s this new technology…
Each time a new technological environment for music comes along, everything shifts. What was dominant recedes into the background. What was once lost is retrieved. And it never quite turns out the way you expect it to. When the music industry was doing its best to shut down radio stations and prevent them from distributing their music for free, who knew they were strangling their cash cow?

This is classic McLuhan stuff.

But these transitions are always problematic. The recording ban of 1942 is just like the imposition of strict needle time in British music radio, which is just like the Home Taping is Killing Music debacle in the 1980s, which is just like the suing of customers.

The best news for music business — and particularly for yours — is that the winners in this game are those who understand the new environment, and find a way to connect an audience with an artist. It really is as simple as that.

Just as patronage is old fashioned, other aspects of the music industry become less significant as we move into the new media environment. The notion of giving money to someone in exchange for a piece of music that you can come home and listen to repeatedly is quite quickly going to be seen as passe.

While we will always want to sell an individual recording to an individual consumer in some kind of physical form, the writing is well and truly on the wall: this is no longer going to be the main way in which money is made from music.

In that respect, iTunes is still completely old school.

The new model is about starting an ongoing economic relationship with a community of enthusiasts. It’s about attention and repeat engagement. It’s about letting go of the idea of the individual transaction and the ‘lost sale’ of a pirate download. CDs and mp3s are increasingly souvenirs of an engagement with a musical experience, rather than the occasion for the experience itself.

It’s about a reshuffle of ratios. And these things are still shaking themselves out. The music industry has not changed — it is changing.

Naturally, we will see a change of ratios within those business models. Patronage has already made something of a comeback through online micropatronage.

Attendance at live gigs has shot through the roof in the last few years.

Amateur performance and a demand for online music education (including sheet music) is growing rapidly.

CDs are dying out as the primary method of consumption of music.

We live in scary and uncertain times — but it’s exactly these sorts of times in which the bold and the innovative thrive. The major players, at times like these, either adapt — or they diminish. Slowly but surely.

But the truth is, whoever puts music into the ears of a willing public, whoever can leverage the new environment to add value and aid the music creators and performers in communicating their art, and whoever can stake their claim on the new territory and make it their own — they are the ones who will thrive and grow.

Become the dominant paradigm
Anyone who’s ever used MySpace or Facebook or Mog or Last.FM or iLike or Twitter or Skype or Second Life or Tumblr or Vox or Blogger or Live Messenger or Yahoo! Groups or Flickr or Google Reader or Bloglines will happily tell you:

It’s about the conversation.
It’s about connectivity.
It’s about relationship.

It’s not a top-down, one-to-many distribution model. It’s not a customer off the street happening by and exchanging money for a product. This is about trust, recommendation and reputation. This is a many-to-many dialogue, and the money goes where the attention lies.

The digital age is profoundly different from everything that has come before it.

Do you get it yet? This is not a format shift. It’s not like moving from records to CDs.

This is like what happened when we moved from sheet music to recorded music. Only more so.

Start with that principle and move forward from there.