Since the beginning of the recorded music industry, record companies have been subjected to a constant and bitter recrimination from artists all over the world, who claim that labels should not be entitled to any sort of creative control over their music, nor the right to own masters. Until recent years there wasn’t much being done about this issue, but with the current reliance of the music industry on the Internet, there has been an emergence of a new and simple, yet interesting business model: fan-funded music.
Amongst the most popular fan-funded music websites are Sellaband.com, ArtistShare.com and Slicethepie.com. While these three websites work within the same framework (but with some differences), it’s hard to say specifically who came up with this idea in the first place. The reality, however, is that the model actually works, and the results speak for themselves; American jazz composer, Maria Schneider became the first artist who won a Grammy with a fan-funded album distributed exclusively online. Some of these websites are not limited to music projects only. ArtistShare and U.S. based site Kickstarter.com both support filmmakers, designers, inventors and any one else with a creative work that needs financial support in order to be created.
Back in 2000, rock band Marillion turned to its fans to finance the recording of their 12th studio album, Anoraknophobia. For this, they applied a similar concept. The band reportedly raised $725,000 by pre-selling the 2-CD album before it was even recorded. The incentive for their fans was that everyone who pre-ordered the album before a set date would get their names printed in the CD booklet.
Despite the decreasing numbers in recorded music sales over the previous years, it seems that fans are eager to help their favorite artists by funding their projects, perhaps in exchange for a ringside seat to the creative process, which is a much more rewarding experience than just going out and buying a CD. Fans also develop a deeper relationship with their favorite artists because they feel like they’re actively participating in the artists’ projects by funding them. Artists on the other hand, can take advantage of this model by marketing their music directly to their fan base with a much more personal approach and develop long-lasting, deeper relationships with their fans.
The principle of how this model works is rather simple, and has been adopted by both new and established artists. By creating an online profile, providing project details, and a budget to be reached, artists will offer incentives to their fans/investors in exchange for non-recoupable money. Such incentives vary, since it is the artists who decide what they are willing to give back to their fans depending on the amount of the investment. Some artists might offer a lifetime backstage pass, or even a private concert.
In order to give artists a reference for budget projections, Sellaband.com provides a series of guidelines for setting a target budget. It includes a detailed list of costs related to recording, manufacturing, artwork, shipping, royalties, etc. Artists can choose an option from $10,000.00 up to $100,000.00 as their funding target. They can also specify if, and how much they want to share the net revenue of their music sales with their fans. Once the target is reached, the project is launched. The website will take care of all expenses and will also take a 10% fee from the total budget raised. However, if the target is not reached, all fans are refunded for the complete amount they invested. The reason they do this is to minimize risk to investors. For instance, if a project had a target budget of $100,000.00 and it only reached $75,000.00, it is likely that the delivered product will be of a lower quality than the project initially envisioned and “sold” to the investors.
Another important factor that can benefit artists is the freedom they have while working within this business model. Although there is certainly an ethical commitment to deliver the best possible product when working with other people’s money, fan-funded websites guarantee the artists 100% creative freedom to produce the project they have conceptualized. In the case of recording an album, artists are entitled to all of their copyright and publishing rights as well as to the ownership of the masters, and remain free to sign a record deal at any time. However, the site Slicethepie.com does charge a royalty per album or per track, but it is significantly less than what record labels charge on their deals.
Since the application process is extremely easy, these websites receive many applications from bands and artists wanting to be financially supported. That’s why, for quality control purposes, they had to come up with a more selective process for choosing who to support. Slicethepie.com, for instance, puts the artists without an established fan base into something called Scout Rooms. The artists are sent to the appropriate Scout Room based on genre, location and so forth. Music fans can earn money by rating tracks in these Scout Rooms with detailed and constructive reviews. Then, the highest rated artists have a period of six months to reach a £15,000 target (the website is currently based in the United Kingdom). If the artist fails to hit the target after the six-month period, they are dropped out of consideration and all investments are refunded. Artists with an established fan base already can bypass the Scout Rooms, and raise up to £500,000.
The system, however, is not without its flaws. There seems to be a lack of a regulatory body that supervises what’s done with the money after the target is reached. There’s not enough information on the websites about what happens when a band, for instance, breaks up after receiving the money, and it’s conceivable that this type of service could be used to fraudulently raise money for an artist with no intent to produce their advertised projects. Hopefully, these companies are prepared to deal with these types of situations, but for now the model’s clearly based on a code of honor between artists and their fans.
Amazon.com Inc. (Public, NASDAQ:AMZN) has recently become an active player in the game. Last year, a deal with Sellaband.com, in which Amazon agreed to be the official online retail store for Sellaband’s launched projects, lead to a $5 million venture capital investment from the European firm Prime Technology Ventures to help Sellaband.com expand in the United States. This is a clear sign that this business model has inspired some confidence in the marketplace. Sellaband’s co-founder and Chief Executive Johan Vosmeijer said “America is the biggest market for us potentially. This new capital will enable us to make the necessary investments and expand in America.”
Despite the uncertainty of the music industry’s future, this model brings a breath of fresh air to the industry by expanding the possibilities of recorded music. Rather than imposing an absolute monetary value on art, and instead providing fans with the opportunity to put a subjective value to music in accordance with their personal artistic appreciation and economic capabilities, fan funded music sites have, to a certain extent, brought about a return of the intangible value of creativity in music.
By Ricardo Gomez
Fan-Funding & Donation Sites: 9 Ways to Raise Money for Your Next Music Project
Camelio, Brian. Founder and CEO of ArtistShare. Video Interview.
Guidelines for setting your Target Budget
Slicethepie – About > FAQs.
Slicethepie – About > How it Works
Coolfer – Music and the Industry. “Fan-funded Artists On The Rise”. March 11, 2008.
Reuters. Haycock, Gavin. “Online music Sellaband gets $5mln investor”. April 8, 2008.
*Additional consultation with Stephanie Kellar. Berklee College of Music – Faculty (Music Business & Management Department).