This industry structure has evolved over many decades. However, it may be relatively inefficient. It incorporates up to three levels of intermediaries between the artists (creators of music) and the customers (listeners of music). Each profit-making intermediary adds a layer of cost leading to higher final cost to the customers. Some companies have tried to reduce this cost by combining roles of multiple intermediaries. For example, BMG Music Club and Columbia House, ventures of Bertelsmann Music Group and Sony Music Group respectively, have been selling CDs and audiocassettes directly to their club members at lower costs. The success of this concept shows a need to reduce the cost by increasing transactional efficiency. On the other hand, one may argue that these intermediaries have economies of scale and economies of scope to achieve lower costs. In addition, they may have gone through a learning curve of optimizing distribution channels to minimize costs.

In addition, to reduce the cost of promotion and distribution, music is sold in an album of many solos (songs or instrumental pieces) forcing artists to develop several solos to make their music commercially viable. This practice invariably leads to inclusion of several "not-so-good" songs in an album. This also forces buyers to buy an album in order to get one or two solos of their choice. We have seen this phenomenon in software industry, too. Microsoft is currently prosecuted by the U.S. Justice Department for bundling Explorer, an Internet browser, with Windows, an operating system. Computer users have to buy (included in the total price) the browser to get the operating system, even if they wish not get the browser.

Under the current structure, the most dominating force in the industry is labels. Labels command tremendous power by controlling major marketing and distribution channels and by binding their artists to long-term contracts. Having very limited access to marketing and distribution channels, most emerging artists cannot compete on their own. They either end up joining a label or remain small in a niche market. This allows labels to walk away with the lion's share of profit. In general, labels collect about 85 to 90 percent of the profit from music sales [1].