This will present a serious challenge to the existing music industry structure, disintermediating music labels from bands' relationship with fans. Mark Mulligan of Jupiter Research is sceptical that large revenues will result:
What we've seen consistently with the younger demographic is an unwillingness or inability to pay for music. Just because this is a very engaged music audience, it doesn't mean they'll actually buy music.
I think the more significant result will be that labels can wait to invest at a later stage in a group's career when their popularity is more evident. The lower risk will reduce the need for labels to make large profits on their few successful acts in order to break even. Then again, once a band is popular, they will be in a position to negotiate much better deals with labels. The EMIs and Warners of the future may be much lower profile service firms providing marketing and logistics support to artists, with successful bands capturing a much higher percentage of their own revenues.
Rupert Murdoch's decision to spend $580m on the site looks less and less of a gamble…