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Are Fan-Funded Models The Future Of The Recorded Music Business?


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Does last week’s announcement of another fan funded music business model called Bandstocks, reinforce the feeling that labels are beginning to lose 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 publishers alike?

Let’s 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 let’s 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 A&R 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 A&R 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 longevity 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 utilize 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 none 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?



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