In the corner of the dining room of my house sits a black rectangle no larger than a shoe box and within this sits a silver square with a screen and dial. Together they store and play the entire music collection of a 36-year-old journalist, the entire music collection of a female business analyst (age not disclosed to avoid arguments) and the irritating songs of The Wiggles, an Australian cover band for toddlers. This pair of boxes has replaced the tower of CDs in black ash, the case of tapes that rattled from one side of the car seat to the other and the shelves of vinyl records judiciously collected at Ben's Records in Surrey using a government higher-education loan. My generation may be the last to think of music as something tangible that is acquired.

Music's difficult entry into the digital world has been one of the main stories of the consumer internet's birth, whether it's Napster, social networks or the iPod and iTunes phenomenon. So being the CIO of a record label is not some bed of roses for a music lover, it's a complex labyrinth.

"The move from physical and a sale price of £15 to digital has killed off the old lifecycle of a music product," Mal Allerton group CIO of PIAS Entertainment Group, explains. PIAS is a UK based international company covering the recording, distribution and production of records in all their current formats from traditional vinyl to MP3.

"The old economics was that there was a single, this had radio play and sales and then there was an album. You [the record company] took a cut and so did the artist. So music revenue is down big time as a result. The money now is in touring and there has been an upsurge in this."

Demonstrating his age and taste in music Allerton explains he had recently been to a Madness [popular London Ska band of the 80s] concert, tickets sold for £33 each and the venue was sold out. Music is a classic example of the Long Tail theory developed by Wired magazine editor Chris Anderson, who claims that creative people should give their art away and rely on funds from performances and merchandise for revenue in a return to patronage of the middle ages, although on a mass scale.

Allerton is honest enough to admit part of the problem facing the dominant players in the music industry is that its run by "50-year-olds and they grew up in the physical world". As group CIO Allerton has to challenge his peers and himself to ensure the industry evolves in the same way music consumption has.

Read Mal Allerton's CIO Questionnaire

The most significant change is that whereas there used to be the single and the album, two very similar product offerings, in the digital world a ‘single' has a multitude of derivatives constrained only by the imagination of the users. This means the single in itself can create thousands of tracks through remixes, or become ring tones, a source of revenue potential. Ring tones come in multiple formats according to which handset it is for, so keeping track of a track is highly complex. "MP3 is becoming the preferred standard but there are many older handsets out there. One track can create 50 products and the artist needs to get their royalties paid from each of these," he explains.

For the record companies like PIAS this means a change of business model.

"PIAS is an old fashioned record company up to the point of going digital, but we are trying to get away from selling a CD to be more and more of a services company, which we sell to the other record labels. For example we did all the distribution and marketing for the last Oasis and Arctic Monkeys albums. This needs there to be lots of transparency that the bands can see." Allerton is confident enough to believe recording behemoth EMI will follow in the tracks of PIAS and adds that bands no longer need a record company to get started.

"The barriers to entry for bands are so low now though social media sites like MySpace and Twitter." So what is the role of a record company today? "The labels have deep pockets for marketing," he says, explaining that touring and merchandise require initial investment that the likes of PIAS and EMI can provide.

"Spotify is free, so how do we collect the royalties? People expect music free now; as a record company you are always competing against free and the challenge is to monetise free," he says of the modern conundrum of creative based sectors. Allerton explains that a royalty report from Spotify is fractions of pence per track. "Instead of where we used to sell 300,000 to 400,000 physical units at a set price of £15, now we sell 10 million tracks for a tiny amount."

Discussing the modern record industry with Allerton it becomes clear that the internet has created a morass of data around music and shepherding this data into something meaningful is the business challenge for a record company. "The digital providers are getting more and more data on a product, right down to the postcode of where it was consumed. Bringing all the traditional retail data with the digital data within a business intelligence (BI) environment to make sense of it all," is how Allerton describes the central challenge of what his IT team has to deliver. And it is a challenge because the music world has not standardised, so there are different formats of data coming in from the online distributors.

Allerton uses Microsoft Dynamics to deliver information from a complex database that divides the data into formats users may require such as regions or age. Dynamics used on a software-as-a-service model, has been introduced to replace two different Oracle databases at PIAS. The Dynamics CRM application set has also been introduced to make sense of the data.

"We are using the CRM to manage interaction between ourselves, suppliers, labels and artists, as well as running marketing campaigns, managing our products and running workflow. There is a massive opportunity for us to create a marketing engine," he says of the data's value. "We could offer this as a service to artists and labels that sign up to us to use our data. The analysis we can provide tells a band where they sold best, through what channel and in what formats. We are always looking at their profitability."

"Our people are good with music, but not good with Excel, so anything you can do to make it easier for them is worthwhile they don't like switching between applications." He says of his decision to adopt Microsoft Dynamics. "They don't want to leave Outlook, so Dynamics is ideal as it allows users to stay within Outlook."

After all the talk of CRM, data sets, revenues and analysis, it was good to hear that at the heart of the music sector is still a core of music lovers, and the CIO's role in a music company is as much about satisfying their needs as it is extracting revenue in the world of free music.