Can you believe $1.2 billion worth of scrapbooks were sold last year?

According to Jonathan Peterson, online indie CD distributor CD Baby is going to offer independent artists a service that puts their music on iTunes, listen.com, and other pay-to-download music sites–for a mere 9% cut of the revenue.

This is where things start to get interesting.

The other day, Cringely proposed a new internet startup that used fair use and joint ownership rules to create a song-download service that would bring the recording industry to its legal knees.

But he forgot one small detail–the impact on the artists. I could start a similar service, in theory, based on his plans that bought one copy of his last book and shared it with everyone who owned a stake in the business, robbing him of his livelihood.

Until we ban money, the only way to make downloading music economically feasible to musicians is if they get paid for it. It's one thing for friends to swap music around; it's another for a company to base its profit model on selling something it doesn't own, or selling something (like advertising) that depends on the distribution of something that those doing the distributing don't have the rights to. That other thing, I believe, is called “racketeering.”

The real way to crack the iron grip of the RIAA is to use the Internet distribution model to do an end-run on its member's channels. If artists create “virtual labels”–cooperatives for marketing their work without the distribution and other associated functions of the big media companies–they can leverage services like iTunes to get product to a significant subset of their potential audience, and use more traditional direct marketing methods to send out physical media.

That leaves just one major barrier–getting heard. How do you disintermediate ClearChannel?