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« 6 things I wish I knew the day I started Berklee | Main | The Futility of Flogging Music »
Monday
Sep012008

Are fan-funded models the future of the recorded music business?

Does last weeks announcement of another fan funded music business model called bandstocks, reinforce the feeling that labels are beginning to loose their attraction to release established artists records? 2006 saw the first real roll-out of fan funded model sellaband.com. Since then sellaband has gone on to have 23 artists reach the $50,000 US dollar threshold to record an album. In 2007 Slicethepie.com appeared on the fan-funded radar and now we have another twist to the model in the form of bandstocks.

What are the differences between each of these fan funded models and what are the pros and cons for artists, fans and the entrepreneurs who have established them? What are the wider implications of these new models for the traditional recorded music labels and publisher’s alike?

Lets drill down on what each of these models offer the artist and fans/investors.

With sellaband artists need to achieve $50,000 US in investment to be successful and record an album via sellaband. This sum can be reached by a minimum of a $10 US investment by fans. Fans can of course invest as much as they want right up to the $50,000 figure. 5000 records are manufactured and provided to each “believer” for every $10 US investment they made. All the records are individually numbered. Interestingly the average investment is $50 US.

The sellaband model breaks down into the following split in terms of return for artists, fans and sellaband. Thirty percent of all sales after recording the album go to the artist, 30 percent goes to the fans, 10 percent to the record producer and the remaining 20 percent is retained by sellaband. The catch is that all artists have to do a 60/40 publishing deal with the company. So how does this compare to its two new upstarts?

Slicethepie was the second kid on the block in the fan-funded arena. Music fans can earn money scouting each track (aka listening to them). However, I must state it was a painful experience listening to rather mediocre tunes and the payment is a real pittance. There are 1000 artists within a scout room and the 20 highest scoring artists go forward to the showcase stage. Music fans vote for and finance showcase artists by buying backstage passes. Essentially, fans can purchase contracts that entitle them to a return based on the number of singles and albums sold by the artist over a 2year period.

The Artist receives the money (non-recoupable) and goes off to record the album, keeping in close contact with Backstage Pass holders in a private area of the site. The contracts become fully tradable on the “Slicethepie Exchange”, fluctuating in value depending on the anticipated number of album and single sales. The album is released and Slicethepie receives a £2 royalty on every album sale. The artist keeps all recorded music copyright and publishing rights, whilst also remaining free to sign a record deal at any time. On the flip side, If you already have a dedicated fanbase of over 5,000 fans then you may be able to go directly to the financing stage. I will state that I do find the process a lot less transparent than the sellaband model.

Now lets examine what little bits we can, of the just launched bandstocks offering. As with both other models you have to sign up online and create an artist page. It is submitted to the site for AnR approval, only if the project is approved does it go onto the voting stage (projects usually stay in this stage for 60 days). Bandstocks then offer to raise a fund for your album. In return the artist grants limited recording rights, yet no publishing, touring or merchandising rights and again projects usually stay within this stage for 60 days.

Bandstocks help the artist when the album goes into production but leave artists with complete creative and marketing control. The next stage is releasing the record, the artist also has approval over the distributor and the album is released physically and in digital format. What I like about this model is that the fund bandstocks develop for the artist is non-recoupable an also non-deductible and the artist ends up with 50% of net receipts. Artists also receives their album copyright back 5 years after release. In return investors get a copy of the album and credit on the album sleeve, and special access privileges (although these are not guaranteed). The bandstocks site just state that fans/investors get a share of all net receipts but does not provide an actually percentage in number terms.

Overall I view bandstocks as the best model for artists in terms of commitment and overall payback. However due to its non-transparent AnR approval stage it may not be viable for all artists. On the flip side many will argue that this will help filter out the “crap” and in all honesty I have no quibble with that. From a proven and delivered standpoint sellaband has had over 23 artists reach the funding stage and go on to record an album. Both slicethepie and bandstocks are yet to be proven in terms of both global success and longetivity when compared to sellaband at this point in time.

The leading question though, is can traditional record labels compete with these types of revenue splits and copyright reverting back to the artist? At present most artists signed to a major label receive between 16 – 20% royalties before deductions, and never own the copyright in the sound recording. Is it even viable for labels to try and compete on these royalty levels and copyright ownership issues? In my mind these new models do not necessarily threaten labels current dominance of the recorded music industry, however they do drive home the point that labels need to become more transparent in terms of payments to their artists.

Sellaband actively states it is open to labels signing artists who have made it through its model to funding. Overall I view both sellaband and slicethepie as propositions from which artists can grow and if they so decide sign to a label, as long as they are prepared for the lower payback in terms of record sales splits. Whereas I view bandstocks as a model that already established artists will utilise when leaving a major or indie label.

How much these new models will impact on traditional record labels will be determined by how many successful artists are launched from these new models and in the case of bandstocks how many currently successful artists migrate from their current incumbent labels to this new model.

One important fact non of these three fan-funded models acknowledge is that music fans between the age of 13 – 18 do not have access to credit cards. Subsequently they cannot partake in helping to finance the artists they love. Albeit, the same is the case in terms of our current digital retailers as kids cannot legally purchase digital music. Will this push them further towards illegal file sharing?

When music lovers of my generation got pocket money we went to the physical record store and spent it on physical copies of records. Kids today still get pocket money, but do not have access to credit and debit cards. How do we resolve this issue and who is going to be the first digital music business model which addresses enabling kids to pay for digital music?

Reader Comments (16)

Thanks for breaking it down for me Jakomi. The flashy jargon of these Band Stock websites can be a lot for me to get through.

September 3 | Unregistered CommenterVoyno

This is a great breakdown of these new services Jakomi, well done.

While these systems aren't perfect, they are certainly a start and I think we will see many more such services start up in the near future. I think there is something to be said for finding out if you have a marketplace before investing heavily in a major release.

Don't forget though that ALL bands run on a fan-funded model of some sort. If the fans stop buying, the band won't survive even if they are with a major label.

September 3 | Unregistered CommenterGibbo

Although I think that these services/ideas are a much needed break from the way things have been done in the industry. I wonder is giving the artist complete creative, marketing and budget control a wise move. I'm not saying this as against the idea but I think sometimes there needs to be a company that the artist has to answer to. Otherwise the artist get caught up in project that ends up a complete self-indulgent pile of musical trash that no one is interested in. This is not all artists of course, but I think younger artists need guidance before someone gives them fifteen grand to record a record however they want with whatever producer they choose (i.e. there best friend has protools rig and does it in his basement for next to nothing). These are just a few of my concerns with this model.

September 3 | Unregistered CommenterDale Adams

1. Sellaband sounds like a swindle -- and an epic swindle, too.

If the fans have already pre-paid and the CDs are delivered directly, why the f*** does it cost $50,000? I can get 5,000 CDs manufactured with Oasis that are beautifully done, in digipaks, for $6,200. Perhaps Micah Solomon is a legitimate black magician who's figured something out that nobody else has, but still, that's a difference of just under $44,000 -- where is that money going?

2. I don't know how many music fans there are in the 13-18 demographic...sure, there's music consumers, but unless you're part of the big Corporate Media Projection Package already, you're not competing with the roster on MTV2 any given day. TV wins with that demographic -- us independent artists can start reaching them when they grow up and develop a sense of taste, as well as a line of credit and a regular job.

3. Open submissions are a serious problem. Myspace has millions of rappers and less than 10,000 of them are any good. I couldn't deal with voting on the OurStage site because 99% of what I was dealing with was horrible music -- amateur crap. Unless they've got a "reject" button where you can immediately remove crap from the table, I don't think I'll ever be going back.

4. Title was pretty deceptive - though I doubt it was intentional. This was a review of three services, you didn't really addess the title question much.

September 3 | Unregistered CommenterJustin Boland

I share the general skepticism, perhaps just because I'm a snob. I was considering doing a review of these types of sites for my own blog, but hadn't gotten around to it. Something about the hokeyness of early iterations turned me off. Seriously, do I want to walk down "Famestreet," as Sellaband calls it?

To address Justin's point, the 50k is for the entire recording project, as far as I can tell. That includes recording, manufacturing, and mailing the 5,000 CDs. The FAQ section lists 18% of the 50k going to printing the CD, which is $9,000. Still more than the amount you mention...

In their theoretical defense, these sites DO succeed in drawing people who are willing to spend money on music. Most fans these days don't want to buy music, so having a pre-screened group of listeners with a demonstrable willingness to fund music certainly makes for a nice target audience. And not just spend a few bucks on a CD, but on average spend considerably more.

It's an interesting experiment, and I commend the innovative concept. I find the move towards commodity lingo kind of disgusting, though. For example, the idea of songs having shares, and people trading music contracts or futures, well...

What would Hendrix do?!

September 3 | Unregistered CommenterBrian

Having been picked to take part in Bandstocks (I'm Fakesensations), I'll put my two cents in - though at this stage I don't know many more details than have been outlined above. I was attracted to the site because of the people behind it, and the fact that it wasn't a free-for-all (think we need a little bit more vetting in online music ventures like this these days). I've tried Sellaband and Slice the Pie - the latter I think is good for getting unbiased feedback on your music but little else, while the former really demands you have an established fanbase to help you out, which I haven't quite generated yet.

I'm pretty impressed by Bandstocks so far - apart from the convoluted sign-up process for supporters, which has put a lot of my friends off when they try and vote for me. That really needs to be simplified.

Early days so we'll see what happens. And of course I'd appreciate any support from fellow Music Think Tank readers/contributers! http://www.bandstocks.com/Project.htm?ProjectId=83

September 4 | Unregistered CommenterChristian Ward

Brian, I appeciate the clarification. Mailing out CDs costs about as much as getting them manufactured these days, so that definitely changes things...plus, for those of you unfortunate enough to be doing "real music" the recording costs are damn steep, too.

September 5 | Unregistered CommenterJustin Boland

Hi Justin,

I agree that the title of the post was not covered as well as I would like. I did think it was important to examine each service in reasonable detail though first to be able to properly critique them. By the time I had written the core elements about each service (and their was a lot) I realised the post was getting rather long and so tried to be rather short in my overall analysis in terms of the title. So please do accept my apologies if you did find the title misleading that was not the intention. I would be more than happy to write a separate follow-up post focusing purely on the ramifications of these new fan funded models in terms of their affect on the recorded music sector if you would like me to? As I do think that it could do with some deeper analysis from my side anyway.

And thanks everyone for the comments...some great discussion coming through.

Cheers,
Jakomi

September 6 | Unregistered Commenterjakomi

Jakomi

Nice post but I feel your analysis does not go quite deep enough and is slightly flawed - I feel that the basis of comparison of these new sites should be with independent deals... also it is good to examine further the motive behind the relative sites.
(I haven’t included Slice The Pie in my comparison as I cannot see it’s convoluted workings as a contender at all)

My conclusion is that Sellaband works in the interests of bands and is an alternative to the traditional music industry - whereas Bandstocks works in the interests of the company and is a hype vehicle to select and launch bands in what will be perceived as a natural way... Bandstocks is very clever - but really it is a bastardisation of the new model in order to fit the traditional music industry.

Here is how I reached that conclusion:
I manage Electric Eel Shock who have successfully raised the 50k budget through Sellaband. I am happy that we control or copyright and get it back after a year…
Bandstocks on the other hand take 50% for 5 years – this really is not a great deal... The last independent license deal which I did for an artist was 60% in the artists favour for 3 years... Even that I feel is a little long.

But I think the more interesting point is this: If you look closer at Bandstocks you will see that it has been set up by a music lawyer who has teamed up with the founders of B-Unique Records: Here is the press release: "Mark Lewis and Martin Toher (B-Unique), who will act as A&R advisors to the company and whose experience of signing and developing a series of successful artists such as Primal Scream, The Kaiser Chiefs, The Automatic, The Ordinary Boys and The Twang will help the company to offer the very best artist investment opportunities to Bandstocks investors."

Now this all sounds very good but it is very tied to the traditional music industry - the very same industry that has failed so many artists and largely operates as a cookie cutter pushing out a line of carbon copy bands the conform to the latest notion of cool. Not forgetting the practice of throwing bands at the market with a one in ten success rate and never mind what happens to those that dont stick...

The beauty of Sellaband is that it is an alternative to the conveyor belt of the traditional music industry – it makes it viable for the independent artist to be able to stand on their own two feet with the backing of a larger organisation - there are no gatekeepers saying what bans should get funded. There is no time limit on raising funds. Although EES raised 50k in 2 months on Sellaband this is because they are a little more established than the average band on the site - generally bands take a little longer – but this means you can find some really original acts that are finding and building a hard core following as they slowly moving towards the budget they need.

Contrast this with bandstocks, A&R process and their 60 day fund raising period and I think they have turned it into a investment machine. This is what Andrew Lewis (a lawyer), Bandstocks’ founder, said:
"It’s not that we don’t believe in democracy, it just works better if you don’t put 10,000 names on the ballot paper."
Wow that sounds like something that those great ballot riggers Robert Mugabe or George Bush would say. Why does it work better? Hasn't he heard of the long tail? It reminds me of George Orwells 1984 quote: "All animals are equal, but some animals are more equal than others" Which in turn makes me think corruption - corruption of a good model which skews the benefits in favour of the company and away from the bands.

That is not to say that as a manager I would not sign a band up to bandstocks – but I would only sign up based on the traditional music industry thinking of only sending them the sort of band that they are looking to release… I am sure Bandstocks will have success with this model – B-Unique are very good marketing people and I think they have created a clever marketing and hype machine with bandstocks - However will it support any real surprises? Does it have the wide appeal of Sellaband? Is it a departure or alternative to the traditional music industry?

Good luck to Bandstocks and all who sail in her – but for now I am certainly sticking with Sellaband….

September 7 | Unregistered Commenterbobslayer

Hi Bob,

I agree with most of your points.

However Sellaband is attempting to get 60/40 publishing deals into their mix and that is where I have a problem.

These days where record sales are down and as such artists need to rely on their publishing even more. And in my mind a company like Sellaband demanding a 60/40 publishing deal is pretty much as bad as the old school music business you mentioned in your comment. Take the publishing element out of Sellaband and I'm all for it. It is the main drawback which has stopped me advising any bands to use it.

Sellaband is clearly the most transparent of the three models. However, a 60/40 publishing deal is 1970s not 2008 where the general rule of thumb is 75/25 in the artists favour and I can tell you that extra 15% over the duration of an artists career is incredibly important with the every decreasing sales of recorded music. Collection societies have been collecting record levels year on year for their member artists and publishers. So publishing income is going up whilst recorded music income is going down.

Would love to hear peoples thoughts on this...

September 11 | Unregistered Commenterjakomi

These days where record sales are down and as such artists need to rely on their publishing even more. And in my mind a company like Sellaband demanding a 60/40 publishing deal is pretty much as bad as the old school music business you mentioned in your comment. Take the publishing element out of Sellaband and I'm all for it. It is the main drawback which has stopped me advising any bands to use it.

September 25 | Unregistered CommenterJames

I don't think fan-funded models are the future. Why? Because it's only getting cheaper and cheaper to produce cds as you can see from the improvements in home studios. And mp3s can be copied at virtually no cost. And if you only want 1000 true fans that would be $50 per person for a recording.

I see a future business model of selling access to the band online, otherwise known as selling the experience. This can be done with a membership site where you charge a monthly fee.

November 29 | Unregistered CommenterWill

" The sellaband model breaks down into the following split in terms of return for artists, fans and sellaband. Thirty percent of all sales after recording the album go to the artist, 30 percent goes to the fans, 10 percent to the record producer and the remaining 20 percent is retained by sellaband. The catch is that all artists have to do a 60/40 publishing deal with the company. ..."

These percentages add up to 90...Any idea where the remaining 10 went?

December 3 | Unregistered CommenterMichael

hello can anyone tell me how sellaband is legal in the USA- with the security issues?

February 19 | Unregistered Commenterdillon park

can anyone tell me how sellaband is legal in the Us with the security issues/

email me at parkstereo@gmail.com

February 19 | Unregistered Commenterdillon park

What security issues does Sellaband have? You're just buying shares in an album.

The one thing these sites don't do is help to market and promote the albums to make sure they sell well.

Having an album financed is one thing, but promotion and exposure is what makes it sell.

There are new websites like bandengine popping up all the time which, the way I see it, could help to get albums like fan-financed ones out to a wider audience.

May 8 | Unregistered CommenterMrMan

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