Can't afford to make an album? Then go online and sell shares in your music

It must be grim to work at a record label right now. Having weathered the storms of Napster and iTunes, labels were then faced with the threat of bands, including Arctic Monkeys, Kate Nash and Lily Allen, releasing tunes on MySpace. Although the Monkeys, Nash and Allen all signed later, the message was clear: record labels were starting to stumble in their effort to keep up with new technology.

Things went from bad to worse when Prince decided to give away his new album free with The Mail on Sunday and Radiohead decided to leave it up to fans as to how much they paid for their new album.

Now there is a fresh horror for music execs: a rash of websites designed to cut record labels out of the music-making process altogether. SellaBand, amazingtunes and Slicethepie all work on the idea that fans and artists should have more say, more power and more choice when it comes to music.

Sellaband was the first to set out its online stall last year. Its concept is that fans invest money in the bands showcased on the website; if the group becomes the next Coldplay, or even the next CSS, the fans stand to get a return.

The two new kids on the block are amazingtunes, (a kind of iTunes for unsigned bands) and Slicethepie. The latter works in a similar way to SellaBand; it is a way for fans to buy and sell shares in new bands, netting them profits if they play the market correctly, while also giving unsigned bands a chance to raise the money to produce an album, which typically costs around £15,000.

Slicethepie recruits online "scouts", who are paid between 5p and 25p to listen to and review tracks, which can be uploaded by any band who wants their music to be heard. Bands who impress the scouts (who rate tracks on a scale from one to 10) can then go on to "float" on the market and fans can buy shares – from a minimum value of £10 upwards. In return, fans receive a copy of the album and a right to buy tradeable "bets" on how many albums the artist will sell over the next two years.

"I got frustrated by the lack of choice in mainstream music," says David Courtier-Dutton, who launched Slicethepie in June. "There are millions and millions of music fans out there and, historically, record labels have been the arbiter of taste and the gatekeepers to making music. But some people don't want to go through the gate anymore, they would rather go through the hedge. It was a revelation to me that there is a lot of unsigned music that is fantastic – much better than a lot that comes out on labels."

Even if you are a band signed to a label, says Courtier-Dutton, it's still a risky business. "Bands are often signed or dropped when someone changes jobs at a company. It's like any industry – people have their pet projects and at times it's a complete lottery."

Courtier-Dutton insists that they are not out to break the back of the labels once and for all. "There's no point in beating them up – we don't consider ourselves to be at loggerheads with the traditional music industry, they're having a bad enough time as it is. Some of the acts on Slicethepie go on to sign with a label. After all, Slicethepie is not a marketing or management engine, it's just an economic model.

"The trouble is that record labels are reluctant to sign a band unless they think it will sell 100,000 records or more, which is the equivalent of telling someone that unless they are going to be chief executive, there's no job for them."

Recent success stories from Slicethepie include Miranda Barber, a London-based singer songwriter, who raised £22,050 from fans buying shares in her music, at a cost of £1.47 each. The guitar band Gilkicker, whose songs have been described by NME as "well-versed snappy three minute pop gems", have done so well that they are now in talks with a record label about a signing and trading in their shares on the website has been suspended.

Slicethepie has also changed the fortunes of a six-man band, Scars On 45, who describe their sound as "Fleetwood Mac playing Radiohead". They have now raised enough money to make an album, something which previously looked unlikely.

"I had never heard of the website" their lead singer Danny Bemrose, 26, tells me. "It was our keyboard player, Nova, who uploaded three of our tracks a couple of months ago and they did really well. Then we went to have a meeting with David and our lawyers and managers went to see them too and they were so impressed. I was close to signing a deal with a record label a while back but it fell through.

"I would never say that I didn't want to get another record deal but really, what all bands want to do is to record an album. But you sign your life away, you really do – all the deals are written in favour of the label. Our lawyers and management were impressed with Slicethepie because things were so much in our favour. They were very flexible, too – saying that if we wanted to use this as a stepping stone towards signing a deal with a label then that was fine."

The band, who have just returned from a UK tour, hope to have finished recording their album early next year.

This sort of economy isn't new, says Mark Ellen, the editor of The Word. "Marillion asked their fans to buy stakes in their next album, which meant that they knew how many albums to make. It was a sort of no-risk enterprise for the band. Of course, websites such as these are a threat to record labels, because everything's a threat to them at the moment. It's part of the wider erosion of the perceived value of music. In the Eighties an album would have cost £14 but now it's about £7.50 and records are now being put out to keep up the concept of the band while people wait for the next concert – that's the way that Radiohead see it."

In some ways though, SellaBand, Slicethepie and amazingtunes are doing the record labels a favour, says Michael Bonner, the associate editor of Uncut. "These websites do a lot of A&R work for the record labels – it means it is easy for them to see what's popular."

And what of Slicethepie's seemingly socialist way of dividing profits more fairly between fans, bands and themselves than record labels seem to? "They [Slicethepie] have set out their stall as being more altruistic," adds Bonner. "They distance themselves from the music industry, kind of labelling it as The Man and saying: 'Hey kids, we're not The Man.' I'm sure that there are altruistic motives there, but they're a company like any other and want to make money."

www.slicethepie.com; www.sellaband.com; www.amazingtunes.com