New music venture Polyphonic, the creation of music industry veterans Brian Message, Adam Driscoll and Terry McBride, aims to re-write the artist contract and blaze a new trail in the music business based on a model of less risk and more modest potential than the major labels.

As previously reported, Polyphonic intends to invest directly into artist businesses, offering an alternative to the traditional label-driven investment model of the music industry. Polyphonic will supply an investment and all copyrights will remain the property of the artist. Polyphonic will earn a share of the profits generated by all revenue earned from artist activities, similar to artist manager earnings. The venture is garnering some attention, most of which has examined the "what" and "why" aspects of their business, but many questions are still unanswered about how the company is going to earn money and, just as importantly, manage that risk.

What kind of artist is best for this model? A band with an existing, digital-friendly fan base that goes to more than the occasional summer amphitheater tour stop. In other words, the bands can't be newbies.

The New York Times on the Polyphonic business model:

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.

The phrase "will operate like start-up companies" is misleading. Polyphonic's model will work best for established bands with modest sales and decent fan bases. The heritage acts of indie rock. The semi-successful acts no longer championed at their major label. Look two paragraphs down and you'll see the threshold: "We are all witnessing major labels starting to shed artists that are hitting only 80,000 or 100,000 unit sales," said Adam Driscoll, one of Polyphonic's founders.

Certainly there are plenty of acts that can have healthy careers on a smaller scale even though they didn't reach critical mass within a major music group's larger infrastructure. And they have been plucked up by indies with great frequency this decade. As the majors have shed staff, merged divisions and reshaped themselves, they have cast off plenty of viable acts.

The key to this particular business model, as is the case with traditional labels, is portfolio management. Since there is no way to remove risk from the equation, Polyphonic will need to make as least risky decisions as possible. Yes, even less risky investments than those made major labels. Unlike new companies, majors have deep catalogs to help generate cash flow and reduce the influence of any one signed artist. That all but precludes the company from starting from scratch. The most risky development ventures should be left to the major labels.

The article says Polyphonic has $20 million to invest in chunks of roughly $300,000, according to the Times. That's room for just under 70 unique investments. That's a large roster but not necessarily large enough to take a loss on two or three out of five bands. A major label's portfolio strategy is based upon creating one hit. A payoff might come after as many as ten attempts, but it can be a huge payoff. A Polyphonic-type portfolio, on the other hand, gathers more predictable, steady earners. And because the majors are spending more on the channels that create hits, the steady earners have less upside.