Amsterdam-based Sellaband allows artists to request support from fans, or in Sellaband parlance “Believers”, who invest anything from $10 up in an album. Funding music this way is not for everyone but it does add a novel and badly-needed niche to the music business ecosystem. Sellaband’s next challenge is to prove that fan-funding can work for artists at any stage of their career and that the model will transfer from Europe to the US. The Public Enemy announcement is an attempt to hit both of those birds with one stone.

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Next summer, you and all your so-called friends from Facebook and MySpace will be able to finally meet in a giant arena, where you ill be able to play dating games, compete against each other in Guitar Hero or Lacrosse, listen to live bands, or check out the modeling contest. The event will be called ArenaFest, and will eventually be held at 50 major sports arenas around the country. Next summer, it will start with 10 arenas in places like Dallas, Detroit, Cleveland, Phoenix, and Anaheim.

ArenaFest will have several draws, including live sports, live music, and live contests. John Ossenmacher, CEO of ArenaWorks Entertainment, which operates ArenaFest, calls it ” our version of live social networking.” People who go will be able to interact with their friends on Facebook and MySpace. And their friends on those social networks will be able to interact with what’s going on inside the arena.

The sport at the event will be lacrosse, which is one of the fastest-growing sports in the U.S. “We are basically building a brand new sports league targeted at this 16-to-24 year old demographic,” says Ossenmacher. But that’s not all.

Live bands, both signed and unsigned acts, will play onstage. For the unsigned bands, ArenaWorks is partnering with SellaBand, the site where music fans can fund unsigned bands. Since its launch in 2006, SellaBand has raised $3 million for musicians to record nearly 30 albums. Now bands on the site will have a chance to tour as well. They will be able to sign up to apply for the ArenaFest slots. If they gather 200 fans, $10,000 towards an album, or the most weekly votes, they get to proceed to Round 2 and play a local venue. The best of those will then be screened by a professional jury, which will determine who will play at ArenaFest.

At ArenaFest, the audience will be encouraged to participate themselves through a variety of contest stations, including a Lacrosse Challenge, Guitar Hero, Next Top Model (to lure the ladies), Dodgeball, and Break Dancing (yes, break dancing). There will also be some sort of dating game.

All of this will cost just $27.50 per ticket, and the whole thing will be repeated weekly throughout the summer at the same venues to encourage the high school and college crowd to keep coming back. “We are changing the whole philosophy of how the arena system works,” says Ossenmacher. Fill up the cheap seats in between games.

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But Amazon may be doing more than anyone else to change the way music is discovered, promoted and sold. Not only do they have a music store that only sells DRM-free music, but they are experimenting with startups who are trying to break the stranglehold that labels have on discovering, promoting and marketing new artists. These startups are giving artists a different path to find their fans. And Amazon is helping them.

Today Amazon announced that it is partnering with a European startup called SellABand and will sell music from SellABand artists. We first covered SellABand in August 2006 – unknown artists upload music to the site and ask fans to chip in $10 if they like what they hear. Once the band gets to $50,000 they’ve proven themselves, and they get to record a CD in a professional studio. Each fan gets a limited edition CD. If the artist doesn’t reach $50,000, the fans can get their money back or give it to another artist.

Earlier this year we noted that the model seems to work. Today, more than 6,000 artists have uploaded music to the site, and a lucky few have been picked by fans to record albums. The top artists will now have their music sold on Amazon UK as well, making the model even more attractive.

See our coverage of Strayform, a different startup with a variation on the SellABand business model.

Amazon also invested in a different startup in the music space – Amie Street. Amie Street is a company I have long admired – we first covered it in July 2006, and last year I added it to my list of “web 2.0 companies I couldn’t live without.”

Amie Street has a model for selling non-DRM music that simultaneously earns artists money and ranks artists by popularity of downloads. All songs start at free. As users begin to download a song, the price rises steadily until it reaches $0.99. So the more a song costs, the more popular it is. Most of the muck is filtered out by $0.25 or so, and the site has some really excellent music. Even some well known artists have tried it out.

Amie street says that the average first time purchase on the site is close to $10. Members spend an average of nearly 8 minutes on the site each visit, listening to some of the 850,000 songs available for download. They also recently inked a deal with CDBaby, where those artists can get their music ranked on Amie Street. And they just opened a Japanese version of the site that is selling anime as well as music.

OurStage, a Boston based startup we recently covered, has yet another way of ranking indie bands.

What’s similar about SellABand and Amie Street is that both startups remove the need for a label to “discover” new artists and promote them in the hope that they sell CDs. Instead, the crowd is deciding what they like and showing it by donating to the artist (SellABand) or downloading songs (Amie Street). If either succeeds, they’ll have Amazon at least partially to thank.

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Ourstage, which launched in March 2007, is a site that lets users rank and buy Indie songs. Artists upload the songs, which users then judge – two song snippets are heard and the user votes for which one he or she likes the best. The result is are constantly updated top lists of songs. The top songs overall or by category are then listed on the site, and two $5,000 prizes are given to the top artists each month.

Users can also purchase any song in unrestricted MP3 format for $.99. Currently the artists receive 100% of proceeds, but starting in 2008 OurStage will begin to take a 30% cut.

Now iPhone users can visit the site and stream any of the top songs – just visit ourstage.com from your iPhone to access the custom user interface, which uses Quicktime to stream the music.

OurStage is taking a different approach to ranking Indie music from other startups we’ve covered. Amie Street, by comparison, simply sets the price of every news song at zero and then begins raising the price as the number of downloads increases. Amie Street was recently funded by Amazon. Also see our coverage of Strayform and SellaBand.

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Like SellaBand, artists sign up, upload some of their music and then create proposals for new music they want to create. Fans can listen to and download the music (DRM free), and donate directly to proposals they like. The proposals are all different. One artist, for example, says he will mention the name of person who pledges the most in the song itself.

The service is more like SellaBand than Amie Street. SellaBand also lets artists upload music and takes donations. If donations get to $50k, as they have for several artists already, The artist gets a contract with a label. Amie Street, by contrast, simply lets artists sell their music on the site. Downloads starts at free and the price increases steadily as more downloads occur.

Strayform has had little press, but, inexplicably were covered by Fox News in a 3 minute segment. The video is available on their home page. I like the service, but the site sure could use a redesign.

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Amie Street’s business model is dead simple – Artists upload their music for download on the site. Users download songs, with the starting price at free. When downloads pick up for popular songs, the price starts to rise, all the way up to $0.99. If a song gets to $0.30 or so, you know its popular. The artist keeps 70% of revenues after the first $5 in sales. Songs are sold DRM-free in MP3 format. Users can also generate credit in Amie Street by recommending songs. Only a few recommendations are allowed, but if the song you promote does well, you get credit in your account that you can use to buy other songs.

Well known artists are starting to use the service. Barenaked Ladies, Master P, Romeo and the Meat Puppets are all distributing music on the site, which has now sold over half a million tracks to users.

To celebrate their birthday, Amie Street is giving the first 5,000 signups on the site $2.50 in free credit and five free song recommendations. Just use the promo code “TechCrunch.” Note that we are not receiving any compensation from this. Try it out if you like.

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Like Amie Street, SellABand has an innovative way for struggling new artists to get their music heard, and make some money as well. Artists sign up and upload some of their music. Users listen to it. If they like it, they pay $10. If a band reaches $50,000 in donations, SellABand helps them record an album with a studio and expert producer.

It’s great in theory. At the time of our original post there wasn’t much data – 130 bands had signed up in the first couple of weeks, and had raised a few hundred dollars each.

But a few months later, wow. 2700 bands from all over the world have signed up, and four have already reached the $50,000 mark and have recorded albums (Nemesea, Cubworld, Second Person and Clemence, and more are on the way. Mandyleigh, one of our readers, is currently no. 4 on the top list and looks to be headed to the studio soon.

Listeners who donate to an artist get a free CD when the goal is reached – and are refunded their money if it isn’t. Artists get 1/3 of all advertising revenue from their profile, and 60% of proceeds from eventual album sales. They also get all rights back to their music a year after the album comes out.

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The way it works is this: bands upload sample music to Sellaband.com, promote the heck out of their profile page and ask fans to chip in $10 per share of a recording that will be produced when the band raises $50,000. The fans can take their money back out at any time before the goal is met. Once recordings are made, they are offered for free on the Sellaband site, where ad revenue will be split between the bands (60%), Sellaband (30%) and the hired producer and manager. Fans each get a copy of the recorded CD and bands are free to offer them any other benefits, like concert tickets, that they wish. Sellaband retains rights on the music for 12 months. The company seems confident that bands will be able to find 5,000 supporters (called “Believers”) willing to put up $10 apiece.

One week since signing on, most of the 130 bands on the site have raised between $200 and $500. One Goth band from the Netherlands has raised $4500. Sellaband says that the $50,000 goal is what’s needed to provide the kind of quality equipment and support that a major record label could provide. The company takes none of this money, only 30% of the site’s ad revenue. The company is made up of people who used to work at major labels and you’ve got to admire what they are doing. You’ve probably also got to give them some credit when they say that they can produce a better album with $50,000 than you or I could, they may well be right.

The web site is very well designed, has clean URLs for profile pages and could work well in conjunction with other social sites. In fact, one quote on the site calls Sellaband “the next step in the mypace generation’s guerrilla assault on the industry.” Unfortunately, it’s one thing to get thousands of teenagers to accept friend requests from a band and I think it’s another to get them to enter a credit card number and buy a stake in a band on the internet. But maybe I’m wrong. If there was some option to pay even smaller amounts, via cell phone text message perhaps, then this would seem more viable.

Perhaps though the prospect of building a site filled with free music from bands that large numbers of people agree are good, and getting a CD out of it, will be motivation enough for lots of people to part ways with $10. Of course they can get a refund at any time, but the likelihood of remembering to go back and get your $10 put back on a credit card seems small. Grant Robertson writes over at the Digital Music Weblog that Sellaband is the type of thing he’s expected to see for some time, but reserves judgment on the strategy.

I like the new business model idea for music, I like it a lot. Last month Mike reviewed another service called Amie Street, where people purchase individual tracks at prices set according to demand – starting at free or for pennies. Users who recommend songs in that system get to share the revenue from sales. I’d love to follow up in two years and see which, if either, of these systems has proven viable.