Crowd Funding

In 1997, when ’80s progressive-rock band Marillion scheduled a European tour to support its new album, keyboardist Mark Kelly posted a message on the Internet saying that the band would not tour the United States because of a lack of record company support. Fans of the band worldwide joined forces to raise more than $60,000, which enabled the band to undertake its largest North American tour since 1991. Since then, Marillion has been able to tour and record several more times as a result of direct fan support. This passionate, grass-roots support has enabled Marillion to step outside the conventional music industry and find its own path.

The key factor in Marillion’s story was the Internet. The saga represents one of the first modern examples of “crowd funding” via the Web, a bottom-up strategy whereby fans and customers drive and direct music markets. Several music services have now emerged to bring this idea into new territories. In this article, I’ll try to shed light on a few crowd-funding efforts. But don’t assume that this discussion paints a complete picture. These offerings are fluid and dynamic, and they may look quite different in a matter of months.

Crowd funding is related to “crowd sourcing,” which takes a job traditionally performed by a designated agent (usually an employee or a record label) and outsources it to an undefined group of people in the form of an open call. Crowd funding has been employed for a variety of purposes: for disaster relief, citizen journalism, political campaigns, and now, for artists seeking support from fans. Crowd funding can replace more traditional techniques, such as applying for specialized grants, with a more casual approach based on crowd participation.

The Internet, of course, has brought the crowd-funding dynamic to a whole new level, providing new, streamlined approaches to quickly imitate the co-op model for low-level or immediate needs (i.e., disaster relief, travel expenses, legal fees, and so on). For this reason, the term can describe the act of informally generating and distributing funds, usually online, by groups of people for specific social, personal, entertainment-related, or other purposes, as in the case of Marillion. I describe this kind of crowd-funding as “arts patronage by the masses.”

A broad range of music industry artists have used the approach to bypass music publishing companies and go directly to their fans, who in turn have become investors as well as listeners. Several notable music services have emerged based on the crowd-funding concept. What follows is a brief look at three of these initiatives: ArtistShare, Sellaband (SAB), and Slicethepie.

Micro-funding

Since 2002, ArtistShare has enabled fans to finance artist projects in exchange for access to an artist’s work. Brian Camelio, a professional musician and computer programmer, founded the site in response to the threat of digital piracy and the inadequacy of digital rights management for music.

ArtistShare uses micro-payments to allow the general public to directly finance and in some cases gain access to extra material by an artist. The artist determines the tiers of fan involvement and attaches a cost to each. With a dozen or more projects by various ArtistShare artists under way at any given time, music fans, patrons of the arts, and creative process junkies gain an unprecedented window into the act of creation.

Participating artists raise funding for recording projects by offering fans special interactivity options, such as the opportunity to download scores in process or to watch a recording session. An ArtistShare “participant offer,” for example, is similar to buying tickets to a live show; fans purchase incrementally priced packages that offer a glimpse of the artist’s work in progress, pre-release privileges, and, in some cases, credit on the final packaging or Web page.

ArtistShare uses radio for customer conversation and input. Web-based audio files run from a music player that enables artists to share their thoughts on the ongoing project and provide other content that is unavailable to the public.

Now in its sixth year, ArtistShare is home to artists who have won nine Grammy nominations and three Grammy awards. In 2004, jazz composer and band leader Maria Schneider became the first artist to win a Grammy with an album distributed exclusively over the Internet by ArtistShare. She received four nominations for her album Concert in the Garden and won in the Best Large Jazz Ensemble Album category. Schneider’s 2007 album Sky Blue was nominated for a Grammy this year. Other artists on the ArtistShare bandwagon include Trey Anastasio, Danilo Perez, Jim Hall, and Kate Schutt.

A Risk-Free Record Label

In late 2006, Sellaband was launched by a music-loving business major and two ex-Sony/BMG Europe execs. It allows fans (dubbed “believers”) to invest $10 each until the goal of $50,000 is reached. The 5,000 believers provide funding for the band to record an album with professional producers and studios. Both parties earn money when it is released. At the moment, 6,355 artists are on SAB, and believers have funded six completed albums. To date, more than 6,000 bands have uploaded tracks to SAB, and $1.3 million has been invested in these artists’ work, according to Pim Betist, one of the site’s co-founders. A total of 11 acts have hit the $50,000 threshold enabling them to create an album through Sellaband.

SAB’s artists are diverse and far flung. So far the Dutch nu-metal band Nemesea and Hawaiian singer-songwriter Cubworld have reached the $50,000 mark. Four other artists are about to enter the studio: Second Person of the United Kingdom, Clémence of France, Lily of the United States and Maitreya of New Zealand. Not bad for a company that’s about a year and half old.

SAB CDs that have reached the necessary threshold are sold through partnerships with Amazon. Amazon, the Orchard, and Heineken Netherlands will sponsor SAB’s first concert tour in 2008. Amazon will also help other bands hit the magic $50,000 level. Any band that reaches the $30,000 mark will get an investment of $1,000 from Amazon to help it along.

Most SAB users are happy with the results. But those bands that have reached the $50,000 goal did not just sit back and hope fans would jump on board. From the start, they attracted believer-investors. They tapped people who came to their live shows, those they met at parties, and fans who had added them to their MySpace or Facebook pages. It’s likely that all the bands among the top 500 followed a similar plan.

The model, which favors the artist and believers over SAB, breaks down this way:

• Of the worldwide CD album profits that are generated, 50 percent go to the artist and 50 percent of profits are shared among believers.

• Ad revenue from the entire site is split evenly between SAB, the artists who have recorded an album, and believers.

• After 12 months the artists get complete ownership of the masters. If they want to sign with a label, they can take their songs with them. SAB only sells the songs for an additional 12 months.

• Each believer gets a limited-edition CD for every $10 he invests.

By deferring the cost and effort of talent scouting to a crowd of music lovers, SAB puts powerful marketing and production tools in the hands of those with a personal interest in the music.

The Music Stock Market

Similar in philosophy to Sellaband though more complex, Slicethepie creates a marketplace for the trading, promotion, financing, and discovery of new bands. Slicethepie turns the standard online music store model upside down by paying users for their musical acumen. The company is set up as a kind of financial intermediary. For each review that they write, users are paid a small fee based on how accurately each review reflects the community’s taste. In addition, users can invest in bands they believe will make it, sharing in profits from album sales on the site.

Once registered, you can shuffle through the songs on the site by clicking the player’s Play Next Track link or browse by genre. When you hear a song that “has legs,” as the saying goes, another link allows you to add it to your watch list. Then, if you want to invest in the band later, you can do so at a discount.

According to Slicethepie, these capabilities “turn every music fan into a record label.” The site’s Scout Room allows people to review artist tracks. Scouts don’t know the identity of the artist they review and rate. Reviews are multiplied and averaged out, and the 20 best artists go on to the Showcase. Scouts act as A&R personnel and earn about 10 cents per review, and they can earn up to 50 cents per review (with each listen taking about three minutes). If an artist is bought out by a record label (which happened to the band Gilkicker after being featured on Slicethepie), scouts and others involved benefit from the transaction.

After three weeks, the winner of the Showcase is guaranteed about $30,000. Investors get a free copy of the completed CD, backstage access, and some cocreation opportunities to become more deeply involved in the artist’s work, but this is not required by the artist.

Slicethepie’s approach is a cool alternative to the traditional method of impressing and then becoming beholden to a few head guys at a label. The great thing about these tools and online services is that they put the power squarely in the hands of artists and fans, making for a sort of meritocracy.

Slicethepie will soon become involved with Facebook and other social-networking applications. And the Scout community will set up fantasy leagues and a virtual trading league that awards cash prizes.

Empowering Bands through Fans

The common thread all three services is the creation of a community of music fans who can finance and contribute to artist development. Sellaband is essentially an online record label that holds initial publishing rights and includes other traditional restraints on the copyright during the first year. Fans or believers take all the risk, making it a risk-free record label. The downside is that the financial returns are potentially 10 times lower than on Slicethepie. Sellaband is essentially an advertising model rather than a strict revenue model. Further, with Sellaband you get to see the bands and the bands’ names, which instills an emotional connection. Slicethepie, however, enforces a sort of neutrality through anonymity of the artist.

Other notable crowd-funding services include CASH Music (cofounded by former Throwing Muses front woman Kristin Hersh) and Fundable. Visit www.crowdfunding.com for others. Of course, with the right set up and creative instincts, an artist can take direct control of the crowdfunding dynamic as singer Jill Sobule is currently doing. Her web site www.jillsnewrecord.com portrays a playful approach to turning fans into funders. Surely, many other artists will follow her lead.

Today’s consumers are no longer passive recipients of brand messages. They’ve become active participants in cocreating the brands and bands they love. This is one more reason for artists to build a community around their product and service experience at their sites. It’s a worthwhile investment toward building customers—that is, believers—who will be there for the long haul.

Peter Spellman is the director of Berklee’s Career Development Center at Berklee and the author of several business-building books for musicians. Visit www.mbsolutions.com.