Anyone who has seen the angst-ridden 20-something film, Garden State, from 2004 is likely to remember the pivotal scene in which the protagonist, played by writer and director Zach Braff, meets Natalie Portman’s character in a neurologist’s waiting room, where she insists he listens to a band called The Shins through her headphones.

Described by Mr Braff as his own “mix tape”, the film’s soundtrack can still be spotted in the top 10 soundtrack albums on the Amazon and iTunes websites two years after the film’s release. Meanwhile The Shins, an Oregon-based indie band who laboured in relative obscurity for years, saw their album sales rise five-fold after the boost.

“The film exposed a new group of listeners to The Shins,” says the band’s manager, Ian Montone. Death Cab for Cutie, another US indie band, similarly broke through to the mainstream after several appearances on television series The OC.

Record labels have long viewed film soundtracks as a good way of promoting up-and-coming artists. Film studios, too, have made money from compilations. But established business models in this niche are now under threat as the ways in which people consume media change.

Sales of compact discs are in decline, making soundtrack licences – for film, television or, increasingly, video games – a more important source of income for record labels. Yet record labels and film studios are seeking to cut the costs of making and selling soundtracks.

“We will try [to] help, putting music in with a lower fee than usual, especially with lesser-known bands,” says Tim Chacksfield, soundtrack licensing manager at EMI, the UK-based music label.

Mr Chacksfield worked with director Danny Boyle on the Trainspotting soundtrack, one of the most successful compilation-style soundtrack albums in a UK film – it even spawned a follow-up, #2, mostly made up of tracks that never appeared on the film.

But such successes are rare. The high costs of releasing an album mean that in spite of wanting to license their artists’ works for use in other media, music labels are becoming more reluctant to invest in soundtrack albums.

Original scores from big-name composers such as Hans Zimmer, who has scored blockbusters such as Pirates of the Caribbean: Dead Man’s Chest and The Da Vinci Code, usually win a CD release. However, compilation-style soundtracks are increasingly less likely to see the light of day.

“Unless you have a movie where the music has a pivotal role or presence in the film, it’s very hard to get a label to want to do a soundtrack – and the days of the really large soundtrack advances are over,” says Rachel Levy, vice-president of motion picture music at the Weinstein Company.

Julia Michels, a Los Angeles-based film music supervisor who has previously worked at Capitol Records and Fox, says this means the opportunities for film studios to treat soundtracks as a source of earnings are diminishing, even as a way of offsetting the costs of licensing the music used in the film. “If you get a soundtrack it’s a plus,” she says.

Instead there might be a “single tie-in” – where a deal is struck on just one song and the film company pays for the cost of the music video; with the objective of increasing both album sales and box office receipts. “So the film gets a marketing tool and the label has its costs supplemented,” Ms Michels says.

While record labels’ earnings from licensing music are growing, this does not appear to be driven primarily by films. Video games present other opportunities; most big music labels now have staff dedicated to dealing with games publishers.

In spite of the budgetary restraint now being shown by record labels, new players have spotted opportunities in the previously slow-moving world of soundtracks.

In 1998 Richard Corbett created Ricall, a London-based company that connects those wanting to license music for advertising, film, television and corporate purposes to a database of recordings and contact details from some 25,000 labels and artists. He believes the soundtrack industry is subject to the “long tail” theory, in which internet economics allows companies to make more from long-term sales of many niche products than from traditional “blockbuster” sales supported by heavy promotion.

“If you’re the Warner Bros studio you’re treated like royalty, but everyone else is at the end of the queue,” says Mr Corbett. That means audio licensing deals could take months to clear – a process his company expedites.

One musical entrepreneur in the US has taken a very different approach to fulfilling the demand for economical soundtracks. Frank Fitzpatrick, an LA-based composer and producer, last year founded Hip Hop Connect, dedicated to commissioning original hip hop music for films and has worked on Scary Movie 4 and Big Momma’s House II.

Mr Fitzpatrick sources his own talent. “Films will come to me and say we want an artist that’s like 50 Cent or Jay-Z but we don’t want to pay $50m. So I have to find an artist of that calibre.” Crucially, he says, these are all genuine artists – but they may be unsigned or between contracts. As a result, the rights process is simplified.

“There’s many more artists than the industry can support,” says Mr Fitzpatrick, underlining a difficult truth about supply and demand for artists trying to break through. For a few of them, a Shins-style fairytale ending awaits.

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