The potent combination of DRM-free music, low cost, and the fact that what you buy plays on your iPod has made Amazon MP3 (see our review) the No. 3 online music store in just one month.

Hypebot, a music, technology, and new music business blog, reports that a number of record labels are saying privately that they believe Amazon MP3 has climbed past Rhapsody, Wal-Mart, and Napster to become the No. 3 retailer in downloaded sales of their music.

Amazon trails market leader iTunes and eMusic, although Hypebot speculates that Amazon MP3 could slip past eMusic to finish the year as the No. 2 online music retailer for some labels. The measurement here is dollars paid, not the number of tracks downloaded.

When Apple launched iTunes Plus, the company’s DRM-free music download service, last April, I was critical of the price increase from 99c to $1.29 per track, compared to their copy-protected equivalents. CEO Steve Jobs attempted to justify the premium pricing, based on the fact that music on iTunes Plus was encoded at a higher bit-rate of 256kbps (up from 128kbps). Yet I still felt that Apple in conjunction with EMI, the only major label to sign on, were in effect penalizing those who wanted to purchase music DRM-free, with all of their fair use rights intact.

Napster, Napster, Napster. First you set the music world on fire (along with the legal system). Now you’re sort of an also-ran.

In yet another attempt to return to glory, Napster will rely less on its desktop client in favor of a Web-based approach as it hopes to attract more paying subscribers.

Napster seeks to make its platform more flexible and compatible with any Internet-enabled device with the release of Version 4.0. The move will allow Napster’s 770,000 subscribers to play their music from any computer without having to download additional software. Before today, Napster subscribers could only listen to their music after downloading the desktop client to their personal computers, although the Napster software is still required to transfer music from the service to compatible devices.

Napster sells music subscriptions for $10 to $15 a month, where customers can stream or download an unlimited number of songs from the company’s 5-million-song library.

“With this new platform Napster can easily be integrated into consumer electronics devices or integrated into other Web sites such as social networking sites,” said Christopher Allen, Napster’s chief operating officer.

Universal Music chief Doug Morris, considered by many to be the most powerful music executive in the universe, is launching an all-out assault on iTunes with a service to be called Total Music.

BusinessWeek reports that Morris is looking to join forces with other record companies to start an industry-owned all-you-can-eat subscription service tied to hardware such as MP3 players and cell phones. Sony BMG is already on-board, and Morris is also in talks with Warner Music Group. Together the three labels comprise about 75 percent of music sold in the United States.

Morris, whose company saw its earnings drop 25 percent in the first half of 2007, believes he and fellow music executives ceded too much control to Apple CEO Steve Jobs when the iTunes Music Store launched in 2003. As Morris said during a recent meeting, BusinessWeek notes, “We got rolled like a bunch of puppies.”

It’s a new day. And another big name in the music industry, Madonna, is about to jump the record label ship.

Pop superstar Madonna is close to leaving her long-time label Warner Bros. Records for a reported $120 million deal with concert promoter Live Nation, Inc., The Wall Street Journal reports. Madonna is to receive a mix of cash and stocks in exchange for three studio albums, the right to promote her concerts, to sell her merchandise, and to license her name.

Madonna, however, still owes Warner Bros., whom she has recorded with from the start of her career in 1983, one studio album and a greatest hits package.

Madonna’s pending move is another sign of how quickly the music industry is changing, although Madonna’s move is different from announcements made recently by Radiohead and Nine Inch Nails.

The record industry is in dire trouble and the major record companies know it. According to the IFPI’s most recent figures, “physical” music sales were down 11% to $17.5bn in 2006, and, blaming piracy — both CD copying and online file-sharing — the IFPI says that overall music sales have fallen for the seventh year running.

However, none of this was unpredicted, and in post-Napster 2003, Steve Jobs appeared to offer the recording industry a way into the future, through the iTunes Music Store. People didn’t want to steal music, argued Jobs, and if paid-for downloads could compete on price and convenience, then many of those illegal file traders would be converted back into paying customers. As a result, Jobs insisted on the unbundling of albums; instead all tracks would be offered for purchase individually, at the same price — 99c — whether they be a new release, top 40 hit, or an older and more obscure song. To which the majors reluctantly complied, and would later learn to regret.

Fast-forward again to 2007, and although paid-for downloads are on the increase, they aren’t rising nearly fast enough to make up for the loss in revenue from falling CD sales. By Jobs’ own admission, on average only three percent of music on an iPod originates from the iTunes Music Store. As if to rub salt in the wound, iPod sales accounted for nearly half of Apple’s total revenue for 2006.

Instead of recognizing that the record industry’s aging business model, even with the intervention of Jobs, is a broken one and in desperate need of a fix, the response has largely been litigation coupled with the introduction of technology, in the form of DRM, designed to enforce copy protection, which, ultimately, just inconveniences paying customers.

If the iTunes model isn’t the answer, and business can’t go on as usual, then what is? Here are five alternative models for selling music, many of which are actually being tested by artists, entrepreneurs, and even the major record labels themselves.

First Radiohead. Now Nine Inch Nails.

Trent Reznor, the artist behind Nine Inch Nails, has informed the music world that his band is “totally a free agent, free of any recording contract with any label.” “I have been under recording contracts for 18 years and have watched the business radically mutate from one thing to something inherently very different,” Reznor said.

NIN is now the second mega-band in the past 10 days to announce itself label free. Unlike Radiohead, which said its new album will be available from its Website for whatever you want to pay, Reznor did not elaborate on NIN’s plans. “Look for some announcements in the near future regarding 2008,” he said. “Exciting times. Indeed.”