Which independent/autonomous labels will be able to ramp up their digital sales quickly enough to ride out the effects of the accelerating retailer/distributor implosion? That is the real question now.

More info on the evolving disaster from Greg Kot at the Chicago Tribune, who has been doing the best reporting on this that I have seen. Read Kot’s latest here. Excerpts, and a bit more, after the jump.

…[T]he industry has lost a third of its business in the last decade, mostly in declining compact disc sales.

Chicago long has been home to dozens of independent labels, none more respected than Touch and Go, which has released more than 400 albums since the early 1980s. “[Touch and Go owner Corey Rusk] created the blueprint for labels like mine, created the system many of us use,” said Bettina Richards, who founded Chicago-based Thrill Jockey Records 17 years ago.

Touch and Go and punk-era contemporaries like Dischord Records in Washington nurtured underground artists of the early ’80s and the business model of sharing 50-50 in the profits from their work. But royalties tend to be modest because sales tend to be limited.

In contrast, the four multinational conglomerates that dominate the music business (Sony BMG, Warner Music Group, Universal Music Group and Capitol EMI) try to create stars with well-funded blockbuster albums that sell millions of copies.

The independent labels have survived for decades because of their frugal business practices. Independent music accounts for about 30 percent of the $17.6 billion music business worldwide, but the labels produce as much as 80 percent of all releases.

The most commercially viable artists at Touch and Go typically were paid about $20,000 upfront in anticipation of selling at least 20,000 albums. A typical major-label advance could be 10 or 20 times that amount, much of that money going to cover studio recording costs.

Still, the independent labels can make money with low-cost, home-recorded music that appeals to a hard-core niche. …

Paid digital sales account for 30 percent of the revenue, but the bulk of the money comes from sales of compact discs and vinyl albums.

So the folding of Touch and Go’s production and distribution service is a major blow to its 23 independent label clients. Touch and Go ensured their products would be manufactured and shipped to outlets in a timely manner. “Distribution is a ton of grunt work, and getting your own CDs made is costly,” said Jesse Woghin, co-owner of Chicago-based Flameshovel Records, a Touch and Go client.

“Touch and Go didn’t make us pay upfront for manufacturing our CDs, and then got them into stores. Plus they were friends. We trusted them. It was a dream come true to be able to work with them. So to have it all come crashing down is really disheartening.”

The future is uncertain for Woghin’s two-man company. “Do we become an entirely digital label? I don’t know. We got into this because we like to make collectible things—things that people would be excited to hold. But that’s becoming less practical.”

Bigger independents like North Carolina’s Merge Records will probably have to cut back as a result of Touch and Go’s decision….

Richards said she’s also going to have to make cuts. “It’s back to the underground. … We make music for a certain kind of connoisseur, and as long as we focus on that we’ll be all right.”

(Aside: Where is the so-called new media on this massively important story, especially the Chicago-based Pitchfork? Check their (lack of) reporting/analysis on the situ, relative to Kot’s — and consider what we’ll have left for “journalism” when the Trib finally goes under, which won’t be long now. GRIM!)