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A young boy holds up his arms in an X as contestants welcome the judges during the first day of auditions for series 4 X Factor at Arsenal Emirates Stadium on June 9, 2007 in London, England. - 

Steve Chiotakis: In Los Angeles this week, auditions took place for the American version of Simon Cowell's talent show "X Factor." In Britain, the version there has become a prime way for record companies to scout new acts.

The BBC's Rebecca Singer reports the Internet's been a factor too.

Rebecca Singer: Simon Cowell is no longer judging "American Idol." He's now working on his new show, "The X Factor." It's been on British television for seven seasons and it's been so successful, that it's become one of the British music industry's main ways to discover new pop stars.

Mike Smith is managing director of Columbia Records. The walls of his office are covered with music posters, and as he picks through a pile of CDs, he admits to relying on new ways to find hits.

Mike Smith: In the old days you'd waste a lot of money traveling around, checking things out that weren't good enough.

But talent scouts aren't just sitting around watching primetime TV. Smith says that isn't going to produce enough records, so labels also search through YouTube and Myspace for the next big thing. And yet, the Internet hasn't saved the industry.

Roy Eldridge has managed music talent for 40 years. He says music piracy has gobbled up record label profits usually set aside to develop unknown bands.

Roy Eldridge: It's certainly taking fewer risks now than it has done previously. I think the number of artists being signed has reduced and I think the labels are being much more conscious of what they're signing.

And with budgets tightened by Internet music piracy, the big record labels are instead spending their remaining revenue on promoting older established acts. That's according to a report from consulting firm Deloitte.

Alex Mattinson's lead singer for Thee Single Spy. He has no interest in auditioning for "Idol" or "X Factor."

Alex Mattinson: So for a band like ours where the music is not uncommercial, but I can't imagine would be Top 40, a label's going to be more cautious perhaps in terms of putting money into it.

With more than four million rock and hip hop acts on Myspace alone, bands like Thee Single Spy are struggling more than ever to stand out from the crowd. Instead of being the way home, the Internet may have just led bands astray.

In London, I'm the BBC's Rebecca Singer for Marketplace.