There’s a new trend that’s popping up that’s kind of interesting. It’s called “crowdsourcing” and it’s a pretty interesting concept. The idea behind crowdsourcing is that a band can raise money to record and press an album by going to their fans.

In contributing money, the fan buys a stake in the album; in other words, they buy a chance to invest in the album, and share in the profits from its sale. This would typically be a small-scale investment, and not enough to get rich off of, but fans of a band can contribute with minimal loss to that band if they believe it will help them progress.

There are a lot of stories out there of bands funding recordings and tours in this matter, typically in the punk scene, but it seems that this newer, more formalized version is starting to make some waves.

Earlier this year, BusinessWeek did an article on this new phenomenon, that’s largely been taking place on the internet. This article mentions several crowdsourcing projects that have popped up, however the projects they featured were not musical in nature. About a week ago they published a new article on crowdsourcing, which focused on SellABand.com.

The SellABand.com concept works like this – a band signs up on the site, fans pay in $10 increments to buy piece in the band. The money raised is held in escrow until the amount of $50,000 is raised, at which time SellABand.com will help the band find a producer and fund their recording. After the songs are recorded SellABand.com posts the songs online charging $.50 each, and splits the proceeds between the band, the fans that invested and the site (and even 1/3 each).

The investment aspect, wherein people are paid a portion of the proceeds for their initial funding of the project, is basically what goes on in the music business. Major labels take a large piece of a record in exchange for funding its recording, producing the record and distributing it.

SellABand.com does offer to sell CDs, however, if you want copies for yourself or to sell it shows, you have to buy them at full price from SellABand. You do get a royalty for every CD sold (as do the fans that sponsored the recording), and if you plan to resell the CDs at your shows, you can recoup your loss.

While you are giving a portion of your royalties away, you are getting a high-quality professionally produced recording of your music. You have to weigh the pros and cons with a service like this. Giving away part of your royalties and CD sale profits might sound unappealing to some, but it’s better than giving away a piece of your profit to a record company that will also take recoupable losses out of your end, and erode your piece of the action to nothing.

For all intents and purposes, you could set up this type of arrangement by yourself and offer a piece of the profit directly to the fans. While you would have more control over the record and its handling, you’d also have to be able to organize the handling of the royalties that are issued to your fans. If you stayed with $50,000 in $10 increments that would mean issuing 5000 checks every time a royalty was due. On top of that you would still have to handle the recording and production of your album, as well as its sales and marketing. That can be a lot of work.

Like with every music service, you need to do your due diligence before signing up. If the model seems right to you, you find the terms acceptable, you’ve read the fine print, and you understand the arrangement thoroughly, you should still proceed with caution.