An article by Brad Stone in yesterday’s NY Times provided evidence of another inexorable, Internet-fueled trend that threatens a long-dominant business model. The victims this time are the major record labels, which have had a long hold on the making and milking of recording stars.

It’s no secret that the Internet’s mix of free and cheap individual tracks is killing physical album sales (which fell 20% last year). In addition, established stars like Radiohead, the Beastie Boys and Barenaked Ladies have been using the Internet to go direct to music buyers, cutting traditional record labels out of the process and keeping a much larger share of the revenue.

As if those problems weren’t enough, it now seems that traditional labels may lose out to new players in the competition for the cream of the crop of up-and-coming musicians.

An example of these new playes is Polyphonic, a venture co-founded by Brian Message, manager of Radiohead.  As Brad Stone reports:

“Under the Polyphonic model, bands that receive investments from the firm will operate like start-up companies, recording their own music and choosing outside contractors to handle their publicity, merchandise and touring.

“Instead of receiving an advance and then possibly reaping royalties later if they have a hit, musicians will share in all the profits from their music and touring.  In another departure from tradition in the music business, they will also maintain ownership of their own copyrights and master recordings — meaning they and their heirs can keep earning money from their music.”

We’re not saying that music labels will disappear, but their business model is certainly doomed.  The question is whether they will stay the misguided course or adapt while there is still time.