FORTUNE — In a world of downloads and streams, making money as a musician is not easy. The days when getting one popular song onto Billboard’s Top 10 chart brought money, fame and gaggles of adoring fans are long gone. So what’s a struggling artist to do?
Gyroskope, a Louisville, Kentucky-based company, has come up with a way for musicians to cash in on the video side of the business. The company provides a platform for an artist to upload videos of live concert performances, studio recording sessions and other behind-the-scenes exploits that diehard fans can view — for a price.
Here’s how it works. Videos are uploaded to a social platform, and the artists set their own prices for how much they want to charge. The videos, which are streamed from the cloud, can be viewed in a web browser as well as on iPhones, iPads and Android phones. Artists keeps 100% of the revenue. Gyroscope makes its money by charging the artist a monthly fee, ranging from as low as $19 a month for the “indie” plan to $499 a month for the “platinum plan.” Prices varying depending on the number of videos and bandwidth needed.
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The company is the brainchild of Todd Smith, a lifelong music aficionado, who took piano and guitar lessons as a kid, joined rock bands in his teens, worked as a music producer, and started an indie record label, Label X, in 2003. Smith knew the current model was “broken” when he watched one of his label’s artists, Peter Searcy, score a spot on Billboard’s Top 10 adult contemporary list with his song “I Believe.” That song was played on promos for the Oprah Winfrey show’s “The Big Give” and NBC’s “Lipstick Jungle” in 2008 — and yet didn’t translate into record sales. “We had all of this firing at one time and yet the sales needle barely moved,” he says. Shortly afterwards, Smith shut down his label.
“People really don’t pay for music anymore and obviously it’s hard to have a business that’s built on selling music in a landscape where music is thought of as free,” says Smith. Indeed, shipments of CDs plunged to 240.8 million units valued at $3.1 billion in 2011, down 75% from their peak of 942.5 million units valued at $13.21 billion in 2000, according to the Recording Industry Association of America. When sales of cassettes, vinyl, music videos, 8-tracks, and other music products are included, sales were off 51% during the same period.
Smith, 46, says fans want and expect direct access to musicians, and are willing to pay for it. That’s how Gyroskope was hatched, he says. The popularity of social sites, such as Facebook, Twitter, Foursquare, and Tumblr, have made this connection essential — and potentially lucrative for musicians who can tap into it. Fans are willing to pay up especially for musicians who don’t reveal too much for free on Twitter and Facebook.
Since launching last Summer, 24 musicians, music festival organizers, comedians and others have signed up for the service. Smith expects these numbers to rise further when the company adds plug-ins to social networks, including Facebook and Twitter, later this month, and starts streaming live events in real-time later this year. “If I’m an indie artist, I want to get to my fans in the quickest, most direct way possible,” he says.
Robert Berliner, a mandolin player for the folk/rock band Hoots & Hellmouth, has been using Gyroskope to share and sell live concert videos to fans. “If they live on the other side of the country or they can’t make it out and they haven’t seen you in a long time, fans will gladly pay $5 for the opportunity to watch an entire long-form video,” he says. He adds that fans respect the fact that the money is going directly to the band rather than to a label or other third party. Berliner says he doesn’t mind giving away his music for free if it wins over lifelong fans who buy shirts, videos and tickets to his shows.
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Gyroskope does face competition in the music video space: Rivals include LiveSet.com, BigLive.com, Stageit.com, UStream.tv, Amazon (AMZN) CreateSpace, iTunes, FromTheBasement.tv,Vimeo.com and Google’s (GOOG) YouTube. Many, such as LiveSet, BigLive and StageIt, only offer streaming of a live event, which is different from the packaged video events that Gyroskope offers. And some, such as LiveSet, actually shoot the live event for the artist.
But Smith believes his company’s pricing structure gives it a leg up on its competitors since the artist gets to keep all of the money generated from the sale. Others, such as StageIt, BigLive, and CreateSpace, take a percentage of the revenue — ranging from 30% to 55% — the artist receives from the sale, and some, such as Ustream.tv and YouTube, offer videos for free and collect revenue from ads, with no money going back to the artist. “As an artist, I’d rather pay $19 a month and keep all of my money – and we’re betting that other people feel the same,” says Smith. “Musicians need to make money. I know this because I used to be one.”
Still, critics question how Gyroskope can prevent a buyer from using software to download the streamed video and then share it with others for free. Music fans often use commercial software, such as CamStudio, Replay AV, and WM Recorder, or even use Mozilla’s Firefox video downloader extension, to capture streamed videos from internet sites, such as YouTube. Gyroskope’s Smith says his company has taken steps to prevent piracy through IP restrictions, dynamic urls, strict user authentication protocols, and other measures, although he admits no site is 100% hack-proof.
Evan Lowenstein, founder and chief executive of Stageit.com, says it’s virtually impossible to stop people from screencasting a video stream. “Even if people don’t screencast, they can hold a video camera up to the screen and put it on youtube – you cannot stop it.” He says his firm only offers real-time live streaming of events, where fans are able to request songs and chat with the musician in real-time. So, even if someone ripped the streamed event, the rebroadcast would not have the interactive capability that attracted fans to watch the event in the first place. “You can’t talk to a video – you cannot interact with a video,” he says.
Lowenstein says fans aren’t willing to pay for static content that can be copied, cut and pasted, and then dragged and dropped “when they can get that stuff for free.” Smith says he’s planning to start real-time streaming of live events later this year.
Jonathan Daniel, a partner at Crush Management, a company that represents such artists as Train, Panic! At The Disco and Fallout Boy, says he believes this service would primarily benefit artists who aren’t signed to major labels. “If an artist is new and a few thousand dollars means something to them, then something like this can be valuable,” he says. “But if you have a band that fills arenas making several hundred thousand to a million dollars a night, something like this is going to be more trouble than it’s worth.”
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Michael Rudoy, founder of BigLive.com, which has streamed videos for such artists as Elton John, says it’s tough for video streaming sites to work with musicians from major labels as there are considerable approvals needed before such a project can get the green light. “You need Oks from many different entities – labels, managers, lawyers, music publishers, rights holders of the master, the band themselves – there is a lot of red tape,” he says. “Labels are becoming easier to work with, but the process has been slow.”
Still, as more and more artists opt to leave major labels to go it alone, clients seeking Gyroskope’s services could surge. “The future is unwritten,” says Crush’s Daniel. “There is a potential in the future where every artist is independent and if they are fully independent, this might be a way for people do it.”