FORTUNE — Musicians have been selling T-shirts to promote their music since hippies roamed the earth, but putting out music as a device to sell T-shirts is a far more recent development.
In the early- to mid-1990s a number of small, independently owned companies began producing the kind of casual clothing favored by skateboarders and musicians just outside the mainstream — graphic tees, jeans in fits that Levi’s didn’t offer. Labels like Stussy and 10Deep that helped define what came to be known as “streetwear” were not only influenced by hip-hop and alternative rock musicians, they also offered them clothing sponsorships and later on began underwriting albums by unsigned artists in trade for their logo on the cover.
Four years ago, the Brooklyn streetwear company Mishka took the idea to its next logical level by starting its own record label. Since then, it has released more 40 albums and extended-play singles, mostly by underground hip-hop and electronic music artists, and in the process has earned a reputation for discovering high-quality music that easily equals any other small label on the cutting edge of pop music tastes. Unlike most labels, though, Mishka doesn’t charge anything for the music.
Mishka is far from the only company to come up with the idea of starting its own branded record label for the purpose of giving away music to its target audience. Mountain Dew (PEP), the cable network Adult Swim (TWX), and car company Scion (TM) — full disclosure: I occasionally work for Scion as a freelancer, and have in the past as a musician — all have in-house imprints that offer free music by artists popular with a young tastemaker demographic that marketers covet. It’s a smart strategy: Paying to record and distribute a record costs less than shooting a television ad, and giving away music from up-and-coming acts gives the brands a foot in the door with an audience that can be resistant to traditional advertising.
The label’s use as a marketing tool isn’t lost on Mishka’s owners. “All of us clearly know our customer base is the same people who are the fan base for these artists,” says the company’s co-owner and “president, I guess,” Greg Rivera. “We’re not sitting here super-strategically, but the reason we keep this going is because there’s a synergy between the two.”
“I think we’re conscious of the marketing aspect,” says co-owner and creative director Mikhail Bortnik, “but there’s some fulfillment in just doing it.”
One major difference between the aforementioned branded labels and Mishka’s — aside from the size of the company that owns it — is that rather than working with established acts, Rivera, Bortnik, and label director Ray Smiling seek out artists with barely any reputation to speak of. “We try to find the artists,” says Smiling, “we try to develop them, we try to give them a platform to reach a wider audience that will hopefully take them to the next step in their careers where they can get out of their bedrooms and become artists full-time.”
“There’s definitely been a few people where we’ve been at their first shows,” Bortnik says.
Typical of the label’s aesthetic approach is its latest release, an album from a 17-year-old Swedish rapper named Yung Lean who tries to emulate the sounds of contemporary American hip-hop on his album Unknown Death 2002 and adds enough idiosyncratic quirks to make it strangely fascinating, rather than a trainwreck. His audience is still tiny — the YouTube video for the lead single, “Hurt,” had a relatively paltry 140,000 views in its first month online — and was largely overlooked by the music media but is gaining a cult following via the microblogging platform Tumblr (YHOO). The label considers it one its more successful recent offerings.
Mishka’s proven itself remarkably adept at breaking its unknown artists, at least in certain corners of the pop culture landscape. While none of the artists on its roster have cracked the Hot 100, the label has had a hand in launching the careers of acts like Supreme Cuts, The-Drum, and Mr. MFN Exquire, all of whom now have sizeable countercultural followings, and Mishka releases are regularly reviewed by trendsetting media outlets like the Fader and Pitchfork. While the label won’t give specific numbers, its releases have been streamed over 2 million times and downloaded more than 300,000, and since they don’t bother tracking unsanctioned sharing, the totals are likely much higher.
Quantifying the label’s payoff in terms of attracting business would be even more difficult, but Bortnik suspects that it’s had little impact yet on the company’s bottom line so far. “If we focused more on making clothing we’d probably make more money,” he says, “but this is what separates us from other brands.”
The digital distribution model that Mishka uses for its label has an extremely low overhead that allows its owners to treat it like an ongoing experiment, and surprisingly, even to the guys running it, it’s seriously competing against labels run in the traditional way, in status if not in income. Bortnik isn’t ruling out the idea of competing more directly, but at this point it’s not a priority. “We’re not against one day turning it into a real label,” he says, “or getting a real label involved that we can partner with. Even if it’s not something we can monetize I just think it’s important.”