Are advertisers the new record labels?

March 14, 2012: 12:57 PM ET

More and more, companies are heading to festivals like SXSW and sidestepping record labels to get to new talent.

April Smith

April Smith and the Great Picture Show has not signed with a record label, opting instead to raise funds through alternative routes like TV commercials and crowd-funding campaigns.

FORTUNE -- The South by Southwest Music festival in Austin, Texas has always been about putting on a good show, according to Brent Grulke, the festival's creative director. That hunt for artists who can turn it on live hasn't changed much, even though the music industry has been scrambling for a new business model ever since the rise of mp3s rattled the old one.

But in recent years, Grulke says, big companies have taken on a larger, more direct role in the music industry, and it has played out in a big way at festivals like SXSW. "What really kind of blows my mind is how enormous corporations still place tremendous value in music." Many massive companies, aching to stay relevant, send employees to SXSW Music, he says.

Of course, companies have always wanted to be associated with talent, and there certainly are large, flashy partnerships at SXSW this year: on Monday, Jay-Z and American Express (AXP) teamed up to promote a new feature on Twitter for AmEx customers, and tomorrow night, Pepsi (PEP) will unveil a 56-foot-tall vending machine to keep concert-goers loaded up with a new Doritos product.

But many companies also want fresh songs from lesser-known musicians to represent big brands, and those companies are now, often, circumventing record labels to get to those artists.

SXSW Music, in fact, has panels this year that specifically address that shift. Wednesday, there will be a talk called "Maximizing Alternative Income as a Hip Hop Artist." Another panel, "Advertising IS the new radio," will address how commercials, not airtime, can launch a music career.

MORE: Retail is dead, long live retail

"The best thing for me was all the commercials," says April Smith, a vocalist with a big, throwback sound. Her band, April Smith and the Great Picture Show, has never signed with a label. Recently, her song "Colors" was featured on a Lowe's (LOW) commercial, which has provided the band with the money to fund a tour this spring.

Companies, or the advertising arms at companies, are increasingly connecting directly with musicians. Last July, Coca-Cola (KO) bought a minority stake in a company called Music Dealers, which links lesser-known musicians with companies looking to use their writing skills or performances for commercial purposes. The partnership provides Coke with a shortcut through the reams of red tape it takes to work with many artists signed to labels. More

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